Calumet Specialty Products Partners, L.P. Aktie

Good day, and welcome to the Calumet Inc. First Quarter 2026 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Kompa, Investor Relations. Please go ahead.

Thanks, Andrea. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. With me on today's call are Todd Borgmann, CEO; David Lunin, EVP and Chief Financial Officer; Bruce Fleming, EVP, Montana Renewables and Corporate Development; and Scott Obermeier, President, Specialties. You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the IR section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours.

Turning to the presentation. On Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations. As we turn to Slide 3, I'll now pass the call to Todd.

Thanks, John. Good morning, and welcome to Calumet's First Quarter 2026 Earnings Call. The beginning of this year has certainly been an eventful and strategically pivotal period for Calumet. Late in the quarter, we saw the renewable fuels market take a major step forward following EPA's long-awaited Set 2 RVO announcement, and we entered one of the strongest margin environments we've seen across both traditional and renewable energy markets. Further, we brought down Montana Renewables for a turnaround in MaxSAF 150 expansion in early March and successfully commenced operations in early May. While these developments did not fully benefit first quarter financial results due to previously disclosed downtime at Shreveport and the planned expansion work in Montana, Calumet is exceptionally well positioned to capture these tailwinds, further accelerate deleveraging and continue our long-term growth and value creation strategy, which we'll discuss further in this call before David takes us through the quarter.

Let's turn to Slide 4 and begin with the outlook for our Specialties business. First, as we've seen historically, Calumet's integrated business is robust and performs throughout the business cycle, and is particularly well positioned for the current market with commodity spreads growing sharply due to global disruptions. We make fuels the co-product of our specialty production process. Typically, when cracks are lower, strong and stable specialty margins carry the day. When crack spreads are high as they are now, we're fully exposed to that upside. Long term, the Specialties business will take advantage of positive commodity environments to strategically deploy excess cash flow into specialties growth. Right now, it creates an accelerated deleveraging opportunity and also opens the door to target low-risk, high-return growth opportunities.

The recent volatility has also reminded us of the capability of our Specialties commercial excellence engine. In March, crude oil prices increased over 50% in the 2-week period and have moved further from there. Our commercial team rapidly executed on over 20 price increases across our product lines to counter the cost escalation, and our customers understand the uniqueness of this current environment. While we have some sales contracts tied to previous month pricing and further downstream and Performance Brands, we see a bit more lag. The fact that our SPS specialties business was able to demonstrate $54 a barrel margins this past quarter despite the rapid cost inflation is a testament to the nimbleness of this team, and the outlook improves on that with the increases now in.

The other pillar of commercial excellence is providing an exceptional customer experience. And despite the craziness in this market, Calumet's team went to great lengths to ensure our customers were as well serviced as evenly possible in this remarkable time. That didn't come without a bit of short-term financial costs, but our specialties enterprise is built on delivering a world-class customer experience.

Further, let's hit on what's going on in the broader specialties market. We all know that roughly 20% of the world's daily crude oil comes through the Strait of Hormuz by now. But what's less publicized is that about 10% of the global base oil supply does as well. Probably more importantly, a disproportionate amount of the world's LOOP crudes, as we call them, come from the Middle East. These are grades that have particularly good specialty qualities and yields and are purchased around the world, particularly in Asia. At Calumet, our crude supply is largely domestic and readily available. Further, we always value the fact that we're a fully integrated, fully dedicated producer of specialty products, which provides stable and quality control despite the market condition. And in strong commodity markets like this one, it also carries an even higher-than-normal economic benefit. Nonintegrated suppliers purchase intermediates like VGO or fuels like diesel and jet as specialty feedstocks to produce lubes and solvents. We're able to make these end products from crude oil, which means we capture the intermediate value of the distillate intermediates embedded in the product price. Further, we just completed 2 successful planned turnarounds at our Cotton Valley and Princeton facilities in April, and we're running at max volumes across the board to capture the current opportunity.

Let's turn to Slide 5. Making nearly as many headlines as the fossil energy market this past quarter was the EPA Set 2 RVO released in March, which has reset the outlook for the biofuels industry and the Montana Renewables. While this has felt like a new market environment given the past 2 years under the Set 1 rule, what we're actually seeing is the EPA applying the same tested and stable dynamic used historically that supports strong stable margins in this business. Many will remember the error in the 2023 Set 1 ruling was due to the EPA assuming feedstock would not be readily available. With that now corrected, after American farmers proved their right to challenge and produce the necessary feeds, the EPA resumed applying the methodology it's used for over a decade. In this, they evaluate prior year's biofuel capacity and increase the mandate to incentivize continued utilization growth.

We see this dynamic displayed through the 3 graphics on this slide. Starting on the bottom left hand of the slide, we're reminded that this industry has seen steady $2 a gallon index margins consistently for years, which is historically what has been required for the industry's biodiesel capacity to run. When biodiesel was not required during Set 1, this dynamic was broken, and we saw industry utilization at roughly 50%. MRL was able to break even in that environment, which demonstrated our unique position, but we're much more excited about this current market for both our business and the industry. Taking a look at the industry supply stack in the chart on the top right here, we see how efficient this market is as well. Post ruling, margins have rapidly increased to create incentive for all biomass-based diesel production to come back online. We also see the Set 2 RVO actually requires the industry to operate at higher than historically demonstrated utilization levels to meet it. And our view is there are 3 ways that industry can fill this gap.

First, the EPA understood there were carryforward RINs available from the small refinery exemptions announced last year. These carryforwards can satisfy most of the supply-demand gap in 2026, but they aren't nearly enough to settle 2027. Second, imports can fill the gap despite being disadvantaged to domestic biodiesel given they don't qualify for the PTC. The third is that this policy incentivizes industry to continue its utilization improvement journey. This journey certainly stalled over the past 3 years, but the administration knows that refineries typically run at slightly higher utilization levels and our industry in its early stages can also continue to improve. Efficiency improvement reduces the cost of biofuels, adds more reliable domestic energy and incentivizes the growth of more domestic agriculture, all while improving air quality. These results are right down the fairway for the current administration and also we expect to be supported in a bipartisan fashion as they always have been.

We believe the industry is up for this challenge. And while very high sustained utilization certainly won't happen overnight, especially given the level of damage done over the Set 1 days, it can happen over time. The third chart on this page is a little closer look at historic biomass-based diesel production levels in relation to the RVO on a monthly basis. The difference in production and demand call results in a build or draw on RIN bank. Again, we see how rapidly industry utilization plummeted during Set 1, and we also see how it's increased with today's more promising future, albeit with a long way to go to meet the Set 2 levels. In addition to a renewed outlook for renewable diesel, we also just commenced operations post our MaxSAF 150 expansion, which was a major step for Montana Renewables.

Let's turn to Slide 6 and further discuss this step in SAF's role in domestic energy growth. We've often discussed the promise of SAF and Montana Renewables' ability to capture the SAF premium given its first-mover marketing experience. Now that we started up our plant post the expansion, we turn our focus to producing increased SAF volumes. Through the initial operating period, we'll continue to condition the catalyst, complete a performance validation and deliberately and steadily ramp production to ensure consistent product quality for our existing customers and for our new customers to integrate into their supply chains over the next few months.

In addition to the internal focus on the expansion and the industry's response to the RVO, we've seen the current market conditions highlight a lasting dynamic in jet fuel, and we think it's important to note. The Iranian war is certainly an extreme moment in energy, but there's a natural experiment here in the event, and we've seen the industry is not equipped to meet a sustained increase in jet demand. Expected jet fuel demand has been growing and is expected to grow faster than all other liquid fuels combined is important. The number of refineries are decreasing, not increasing, and refineries don't just make jet, thus as gas demand slows, the jet shortage grows. SAF can be made at much higher yields and much more intentionally than traditional jet. And SAF receives the additional benefit of environmental energy credits and farmers are rewarded for growing more domestic feedstocks.

With an increase in SAF and the RVO, we can make more biofuels to supplement traditional energy, we generate environmental credits and American farmers grow more and make more money to sell us the feed. It's an extremely efficient and circular system with dramatic positive impact to our country, and Montana Renewables is in a perfect position to support this opportunity. With that, I'll turn the call to David.

Thanks, Todd. Let's get into our results. As Todd mentioned, the first quarter was a transformational quarter for the business as well as strategically. In terms of financial results, the company generated $50.1 million of adjusted EBITDA with tax attributes, slightly down from the $55 million generated in the first quarter of 2025. Despite the extraordinary margin environment for both of our businesses, we didn't fully capture the opportunity the market provided due to a previously disclosed operational event in Shreveport, which was ultimately resolved and the plant is now fully operational. Late in the quarter, organic chlorides were discovered in our crude stream, which caused a loss of about 750,000 barrels of production. Organic chlorides are a serious risk if not identified and managed appropriately. They're an inorganic contaminant not naturally found in crude oil, which appears in the naphtha fraction of the feed used to produce gasoline.

Our industry has seen serious consequences when these are carelessly blended into crude because they cause rapid erosion of steel and our Shreveport team noticed the corrosion, identified the cause and acted swiftly to manage the risk of placing the directly impacted naphtha processing equipment and examining the entire facility at caution. The event, which cost us over $30 million of lost opportunity given the elevated margins at the end of the quarter is now behind us. The plant is running about 50,000 barrels per day, has done so most of April, and I appreciate the team managing through this complex situation safely and urgently.

Turning to Slide 7 and our Specialty Products & Solutions segment. Our underlying business remains strong. We generated $44.3 million of adjusted EBITDA during the period compared to $56 million generated in Q1 2025. We believe that the unique elements of our business model, integrated assets that provide optionality combined with commercial excellence to capture value are well suited for periods of extreme volatility like we are in today. As a comparison, today's business environment is similar to 2022 when we saw similarly elevated crack spreads and specialty margin. In that year, the company generated over $400 million of adjusted EBITDA.

Our integrated business allows us to produce fuel and take advantage of the attractive high-margin fuel environment. Using current strips, the 2026 full year 2:1:1 is over $42 per barrel, nearly double what we saw on average over 2025. In addition, our Specialties business, we've now posted the sixth consecutive quarter of sales volume exceeding 20,000 barrels per day. This was accomplished despite the outage of Shreveport, which primarily impacted our fuels business. Specialty margins during the period were temporarily compressed due to the extreme spike in crude oil price. The commercial team acted quickly pushing through numerous price increases to offset the impact of rising feedstock costs. We put in place more than 20 price increases to date and anticipate seeing the future benefit of this in the second quarter.

These price increases put the elevated fuel margin environment position us well for what we will be -- what we believe will be a strong second quarter where we expect to generate additional cash flow during this attractive margin environment. To add to that and to fortify our ability to achieve our deleveraging targets, we've entered into crack spread hedges for portions of 2026 and 2027 fuels production. Currently, we have in place approximately -- hedges for approximately 10,000 barrels per day or around 25% of our fuel production on a 2:1:1 crack spread. We entered into a portion of these 2026 hedges at around $22 per barrel of the 2:1:1 crack using A grade or CBOB for the gasoline leg of the hedge. Note that CBOB trades at a $3 to $4 discount to Gulf Coast 87.

Those hedges position us -- those hedge positions were put in place at an attractive historical levels even before the large run-up driven by the conflict in the Middle East, and those cost us around $6 million of realized hedge losses during the period. The next tranche, which was added recently was 10,000 barrels of production for 2027 at levels closer to $27 a barrel also on a CBOB basis. Now how these hedges end up is a function of what happens from here in the Middle East. For us, it's about making sure we deliver on our strategic objectives, which is generating strong cash flows to accelerate deleveraging and derisking a portion of our fuels production at these extraordinarily high margins. This puts us in a place to support that goal while also leaving plenty of room for upside of our remaining fuels production.

Turning to Slide 8 in Performance Brands. We also continue to benefit from our commercial excellence strategy in this segment and a truly premium brand in TRUFUEL. We reported $12.6 million of adjusted EBITDA. The results were partially impacted by margin compression and the normal price lag associated with a more retail-oriented customer base. While we have been also implementing price action, this branded space takes about 60 to 90 days to fully reflect the increases compared to the less than 1-month lag in our SPS business. Taking a closer look at adjusted EBITDA on a like-for-like comparison basis, we've seen continued growth. As a reminder, the results of Royal Purple Industrial business are reflected in the first quarter of 2025 financials when we own that portion of the business and not included in the current period following the divestiture in March.

Last March, our commercial and operational teams in less than a year have successfully offset the lost EBITDA associated with Royal Purple industrial business through disciplined cost controls, growth of our trusted brands and our strong customer relationships. We announced that our TRUFUEL business in February had posted record monthly results and that momentum continued throughout the entire quarter as we posted record sales volume, and we posted another monthly volume record in April. Customers continue to place a premium on the value of our engineered fuels, our innovative packaging option and overall product reliability and convenience.

Turning to Slide 9 and our Montana/Renewables segment. Adjusted EBITDA with tax attributes was $10.2 million for the quarter compared to $3.3 million in Q1 2025. Renewables EBITDA with tax attributes on a Calumet-owned 87% basis was $8.8 million. As Todd mentioned, we've delivered the MaxSAF 150 expansion on time and on budget. With our new capacity, we are stepping into a market with significant tailwinds from a transformational product mix shift between renewable diesel and SAF that will deliver a four to fivefold increase in SAF volumes on an annual run rate basis. The business is incredibly well positioned as we ramp up production with the new RVO and a diversified portfolio of customers with a contractual SAF premium of $1 to $2 per gallon over renewable diesel, all of which is underpinned by our industry-leading low cost structure.

As these dynamics further take hold, our renewables business is at a positive inflection point, and we leverage the strategic investments we've made in the business over the last several years with an expectation of meaningful cash flow generation. As Todd mentioned, following the 2023 RVO and trough-like margins, the industry managed through but no further than the RINs pricing in 2026 to see that, that recovery was already in process prior to the extremely constructive RVO announcement in March from the current administration. Finally, capital expenditure during the quarter within MRL was approximately $15 million and funded entirely by cash within MRL on the balance sheet.

Before leaving this segment, our Montana asphalt results were in line with the prior year as first quarter 2026 reflected typical seasonality and price lag impacts in our wholesale asphalt business. We are moving into a seasonally stronger period in Q2 as well as an extremely supportive crack environment for fuels also in this segment. As we routinely said, we expect the site to produce $30 million to $50 million of annual EBITDA range in a normal environment, and we look forward to the opportunity at hand in today's stronger market environment. Let me now turn the call back to Todd for his concluding remarks.

Thanks, David. And before I turn the call back to our operator for questions, I wanted to remind those joining that we have filed our proxy materials and the voting window is open. For all shareholders listening, we appreciate your support. It's almost 2 years since our conversion from an MLP. We set out to create a stock with much higher liquidity and a broader investor base, and over the past few years, we appreciate the new investors that have joined us as our daily trading volume has increased over tenfold. Our strategy is focused on creating shareholder value, and we're always available to our investors to further discuss our proxy materials and our business strategy. Thank you for joining us today, and I'll turn the call back to Andrea for questions. Andrea?

[Operator Instructions] Our first question will come from Amit Dayal of H.C. Wainwright.

So the story seems to be in a really good place, guys. The demand and pricing environment is pretty solid. So I'm just trying to get a sense of the risks, are these primarily coming from the cost and input side of things or new supply coming online? Can you share any sort of drivers where we should be paying attention to that may provide any sort of unexpected surprises, I guess, in terms of how the setup is right now?

Amit, it's Todd. Thanks for the question. It's -- I'd say that we spoke a lot about the market today, and there's not a single element in the market in either renewables or specialties or kind of more broadly fuels that I'd point to and say has any singular risk that is keeping us up at night. I think the market is in really good shape. We talked about the reasons why, specialty markets supported by disruptions globally and it is just a normal strong, stable market in any environment.

I'd say if there's anything, it's just acknowledgment that it's very volatile out there. And there's still a meaningful conflict going on, and we could see pretty massive volatility. We've seen how quickly these markets can move. But as we sit here today, I think we have a lot of confidence in our commercial team to react accordingly no matter what happens. They've proven that. And price increases are in on the specialty side, so we feel pretty comfortable with where we're at. We'll see a little bit of margin tightening in Performance Brands while we kind of play through the lag there for the next couple of months. But other than that, we feel like we're positioned pretty well and really looking forward to the opportunity the market is offering.

Just next one for me is on the SAF side of the story. Your SAF contracts where you are getting the $1 to $2 premiums, how long are these in place for? And then do you think when these renew, you'll be able to get similar or better terms?

Amit, it's Bruce. Thank you for the question. So the term contracts are evergreens. The notice periods, we have a distribution of those at this point because we've been selling SAF for 3 years now. And as we step into these, we're going to kind of have different notice period dates. But what I can tell you is the ones that we roll have renewed within that guidance range. The new ones are a portfolio of kind of various next notice dates going forward, and then they stay with us as evergreen relationships.

And I'd just add a little bit of that. On average, these are typically 2-, 3-year type evergreens. But as Bruce stated, so far, they've all continued to roll forward. And as far as the margin environment and ability to renew, we feel quite comfortable with where those have been as we've rolled forward contracts historically, we've certainly not had a problem re-upping them and adding additional supply as we've been doing here recently over the last 6 months or so. We haven't seen any step back in margins. We think that the underlying fundamental support is there given all of the demand for the renewable energy credits, the underlying scope credits, et cetera. So pretty bullish on the outlook there and our ability to continue growing our marketing.

The next question comes from Conor Fitzpatrick of Bank of America.

I wanted to dig a bit into maybe an update or refresh on the second phase of SaaS capacity expansion. It's still a ways away, and it could maybe take a more modular form, but I was wondering if there was just any update on CapEx, build parameters, engineering. And obviously, the contracts coming in for this first phase are pretty bullish, pretty supportive of continued demand. It sounds like there's still the opportunity there to expand at a similar profitability to the first phase.

Conor, thanks for the question. It's Todd. Yes, look, we've been focused on the current phase. Obviously, we're just now commencing operations, so very excited with where we're at. We want to stay focused there. So we've got our team kind of head down operating -- focused on that operation. At the same time, we do have an independent project team that's certainly looking at the next phase of a modular opportunity. It's probably a little bit too early to get ahead of ourselves on announcing that. We hope to be able to talk more specifically to that soon.

I think in the past, we've said let's get a chance to get up, get through this commissioning, ramp up here over the next couple of months, and we'll certainly be out and looking forward to doing so in the not-too-distant future to talk about what's next and how the follow-up steps can play. But to your point, we certainly are bullish about the opportunity to continue to expand. We think the opportunity is there, it's readily available, and we're not seeing any demand gaps that would hinder that. So we're just going to kind of take it one step at a time here, but hope to be able to talk about our acceleration plan and next steps pretty soon.

Great. And I guess the follow-up is, it looks like there are maybe still some impediments to biodiesel capacity ramping to full or peak rates again, and I think there are various reasons to do with physically operating such as feed cost basis in the Midwest, diesel pricing and biodiesel pricing specifically in different regions of the U.S., ability to have the actual cash inflow from 45Z credits soon enough to incentivize production. So I was just wondering how far are we maybe from biodiesel producers, the marginal ones that will be needed to supply the market until profitability so that they can ramp up fully?

Conor, it's Bruce. So yes, I think you've got -- that was a good frame of what some of the issues and drivers are. There's 2 fundamental questions you asked, what about their volume and what about the economics that follow from that. So our supply stack says we're solidly back into a market environment where the prices are going to have to incentive the small biodiesel guys, the independent ones. And remember, some of them are running -- everybody's got their own specific, unique situation. That's why those stacked cost bars have arranged to them. And the question on volume is how fast and how many, so have these been permanently abandoned? And history shows us that it's kind of -- I call it ghost capacity, but it can come back faster than you think unless somebody just gave up and removed it, and we're going to find that out. But a lot of the analysts are calling for getting back into the 90% utilization range of biodiesel capacity by towards the end of this year.

The next question comes from Josiah Knight of Goldman Sachs.

Maybe on the feedstock side of the equation for MRL, how much pressure are you seeing? And then can you remind us of MRL's relative advantage and feedstock flexibility in navigating these costs?

Josiah, it's Bruce. Thank you for the question. We have essentially unlimited feedstock flexibility. We set it up that way on purpose. And the pretreater capability is what allows us to follow the market dynamics and pricing volatility. So we're pretty aggressive on our monthly re-optimization. We exist in the middle of the feedstock long area. So there's never been a question of any kind of physical shortage. And we seem to do better on optimization and re-optimization when we look at our capture percentages versus an industry index.

Got it. That's helpful. And then a follow-up, maybe on the base business, how are you thinking about the earnings outlook in the near and medium term, especially given some of the recent volatility for commodity prices?

Josiah, it's Todd. Look, I think as we talked about during the script period earlier, we're pretty confident in the outlook. Obviously, the fuel margin is incredibly positive right now. There's pretty meaningful supply disruption. We don't think this is something that just returns in a very short period of time. It's obviously not something that lasts forever. But it feels a lot like 2022 when you kind of just see the shock that we're seeing in the market and you look at inventories out there, and they're depleted not only here, but really throughout the globe. And on the specialty side, we've talked a lot about our ability to push price increases through rapidly.

Commercial team did over 20 of them in a very short period across the product line. So at current costs, we're quite bullish on the outlook for both fuels and specialties. Obviously, we could see increased volatility from here. And if we do, then we've demonstrated that we can react accordingly, and we'll do that. But I think big picture, the market is pretty constructive on a margin outlook basis no matter where you look. Our specialties business is -- has a domestic supply chain and access to feedstock and you just can't say that on a global basis right now. So we'll continue to serve the market.

The next question comes from Gregg Brody of Bank of America.

You referenced '22 as how to think about maybe specialty material margins and the environment you're in. Those margins got up to the $90 range during that period. And you mentioned you've been able to put through -- you've been able to pass price through. Is that the type of environment we're in right now? Or is it going to take -- do we have more steps we need to go to get there in terms of price increases?

Gregg, I don't think right now, we would look and say we're at $90 specialty margins going forward. I think when we talk about 2022, you're looking at kind of analogies to the whole demand period. Increasing crude costs create a little bit of lag in the specialty business. I think back in 2022, we were able to overcome that in a hurry. We've done the same here. We'll see what happens, right, with volatility in the back half of the year here, but feel pretty good about where we're at. So as we sit here right now, I'd say specialty margins are a tad lower than 2022 and fuel margins are a tad higher than 2022. And if you blend those together, then it's probably a good period. But we're not trying to draw too tight of an analogy here. We're just saying the market feels pretty similar where supply shocks are going to drive margins that are sustained for a period of time and provide the ability really to generate some excess cash flow and accelerate our deleveraging plan.

That's helpful. Are you seeing any response from the consumer as a result of the price spikes?

We really haven't right now as far as demand. Obviously, everybody is getting their arms around these rapid cost increases. But I think where we sit right now, there's just -- there's such supply disruption throughout the space that consumers need our product. This isn't something -- a lot of our products go into consumer necessities and staples and not things that have massive price elasticity. So we don't expect this to be something where we're seeing dramatic demand declines, et cetera. We even saw record growth period at some of the downstream performance brands. We talked about a TRUFUEL record, et cetera. So we've seen consumer demand continue to stay strong throughout the space. How long that continues is probably a function of just general consumer sentiment and market volatility. But as it sits right now, I think we're pretty positive on the outlook.

And you -- just shifting to the organic chloride issue, which is in the past. Is there any remedies you have to make to the facility to fix any damage that was done at some point or just going forward, what's the risk of something like this happening again?

No, there's a -- it's a good question. There's no further work needed at the facility. We took the event extremely seriously. We inspected the facility thoroughly. We made quite a few repairs at the time, and I'd say in a very conservative fashion. We weren't taking any risk with the situation. We took a big chunk of our naphtha train out of service and replaced it. And we've installed quite a bit of redundancy in the sampling and quality monitoring throughout the system just to ensure that this can't happen again.

What typically happens in these types of scenarios throughout industry is polarized and a small amount of them can do a lot of harm, sneak in with crate supply and bypass the upfront QC checks. And I think that's what happened here. We're still fully investigating the deals. We can figure out what happened there certainly -- we'd certainly be very aggressive with any culprit that created that. But as far as the current go-forward position, the facility is operating really, really well. There's no sustained damage. We aggressively attacked any repairs that need be made, and we've been up and running really strong for over a month now.

Got it. And just shifting to the deleveraging plan. You highlighted that you'll use cash to deleverage. Does -- you're clearly set up for a windfall here from both the restricted group assets and MRL. Does that change the way you're thinking about potentially monetizing MRL to pay down debt at the restricted group? Or is that still the plan right now?

No, I'd say the plan still remains as it has been. Ultimately, we think that Montana Renewables is going to present an opportunity to monetize. At some point, we're well on track to accomplish that. Obviously, this recent RVO was a major step in the right direction, so no game plan changes there. We think the next step here is just showcasing what the earnings power of this business is with both MaxSAF project that's up and running and a really positive RVO market. So that's what we're focused on here for the foreseeable future, next quarter or 2, and we'll go from there.

The next question comes from Jason Gabelman of TD Cowen.

You mentioned you're in a validation process of the MaxSAF expansion right now. So can you just talk about what the steps are to get it to a steady state or if it's already at steady state? And then in this type of margin environment since the asset has been running, what type of margin are you seeing coming out of it?

Jason, it's Bruce, I'll start us and see if I touch those 3 points. Just on the last one, the renewable diesel index margin hit over $3 a gallon at the end of the quarter. We're not calling for it to stay there. If you look at our supply stack, we think the renewable diesel industry structure, the equilibrated structure should be a bit north of $2. The SAF premium overlays above that. And so just with that as a reminder of structure, that's how we've always talked about it. In terms of the operational current performance, we did restream the unit after the extended turnaround plus capital projects. Those are the modifications that we've called MaxSAF 150.

We had a little bit of a sidestep on an unrelated electrical power interruption to the site, so we had to restream at a second time. With that behind us, we're finishing the ramp-up. We have a performance test design that's probably, maybe 4 weeks out. The catalyst comes with performance guarantees. We've modified the hardware, and we want to test that we've delivered the engineering expectations. And so I think we'll have more intelligence in a few weeks. But no reason, nothing that we see gives us any reason to think that we've underachieved in any way. So we're excited about the go forward.

Got it. And can you also remind me just from an OpEx standpoint, if there's any change on a unit OpEx relative to where the initial MRL was at?

So our track record of improving controllable costs, and we got down to something like $0.38 a gallon, that's a chart we published occasionally, is pretty compelling. We don't think that we have any kind of reversal on that just because we're fractionating more kerosene out of the total reactor products.

Got it. And then maybe just turning to liquidity. And we've -- there's been a lot of volatility in the market, and you've seen in some of your refining and biofuel peers, working capital derivative hedging kind of headwinds related to that commodity volatility that we've seen. Have you seen that to a large extent? Can you talk through impacts on cash flow as a result of the volatility and if you expect that to reverse over time?

Yes. So I'd just start out by saying that we kind of feel good about our liquidity position and the cash that we're kind of generating in the current environment kind of after some of the operational things that we saw at Shreveport during the quarter. We've obviously seen a big run-up in crude price. That does impact us a couple of different ways. One on the inventory cost that we need to buy. There's a little bit of a lag as we buy into the market. And then also accounts receivables. You may have seen that we were up over $100 million as kind of prices that are getting passed through at a premium to crude just roll into our AR. But there was kind of a big draw on working capital during the period from that run-up that was exacerbated by the downtime that we saw in Shreveport, and so we're already seeing kind of almost a total unwind of that. So we're already seeing it in April, and there'll be a little bit more into May.

And then just to touch a little bit on the liquidity path, we did this tack on for $150 million kind of earlier in the year. We thought about that as a way to kind of at a pretty cost neutral, even at a premium kind of pay off some of our 2028 when the call protection steps down in July. And so we're looking at this current volatile environment. We don't know how long it will last, but we were in an attractive position to kind of take from the market kind of pre-reduce that debt and use that extra cash to balance kind of the spike in crude. And so as we move forward here, I think we'll still use that cash to pay down debt. We'll just re-evaluate what the market looks like closer to July when our call protection steps down and what's happening in the world.

This concludes our question-and-answer session. I would like to turn the conference back over to John Kompa for any closing remarks.

Thank you, Andrea. And on behalf of Todd and the entire management team, I'd like to thank everyone for their time today and interest in Calumet. Have a great rest of the day. Thank you.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Good day, everyone, and welcome to the Calumet Inc. Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to John Kompa, Investor Relations. Sir, please go ahead.

Thanks, Jamie. Good morning, everyone. Thank you for joining our call today. With me on today's call are Todd Borgmann, CEO; David Lunin, EVP and Chief Financial Officer; Bruce Fleming, EVP, Montana Renewables and Corporate Development; and Scott Obermeier, President, Specialties. You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the Investor Relations section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours.

Turning to the presentation. On Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations.

As we turn to Slide 3, I'll now pass the call to Todd.

Thanks, John. Good morning, and welcome to Calumet's Fourth Quarter 2025 Earnings Call. 2025 was a defining high-impact year here at Calumet. We began the year with a credible plan and large potential amidst deep market uncertainty. Throughout the year, risk was aggressively managed and execution of our strategy turned Calumet's potential to actualize results. We opened the year with a mandate to demonstrate critical strategic objectives.

First, we needed to demonstrate that our Specialties business would consistently generate durable free cash flow amidst large market uncertainty. Second, Montana Renewables needed to prove stand-alone financial resilience and a structural advantage. Third, we needed to receive the transformative DOE loan at Montana Renewables and last, accomplished material deleveraging of the balance sheet.

As we reflect on 2025 today, I believe Calumet achieved each of these strategic milestones. Over the course of the year, we reduced financial risk, expanded our structural earnings power and repositioned Calumet for long-term value creation. Let me walk you through some of the highlights, and we'll start with the balance sheet. We ended 2024 with restricted group leverage standing above 8x. We faced near-term maturities and elevated cash interest costs. Montana Renewables was awaiting DOE funding and the broad equity markets were hesitant to engage with fundamental value plays like ours. Today, that picture is very different.

For full year 2025, we delivered $293 million of adjusted EBITDA with tax attributes, nearly a 30% increase year-over-year. We reduced restricted debt by more than $220 million. Net recourse leverage improved from 8.2x to 4.9x. We eliminated our 2026 and 2027 debt maturities, and Montana Renewables successfully closed its DOE loan, removing roughly $80 million of annual cash debt service while also improving its leadership position in this industry.

The outcome was a fundamental shift in financial durability, and this outcome was driven by structural improvements. Across the system, we dramatically reduced costs and drove increased reliability. Fixed costs were down over $40 million. Water treatment costs at Montana Renewables were down over $20 million as were our crude transportation costs in the Specialties business, while greatly enhancing feed flexibility and our ability to dial in specific specialty products for our customers. And as a result of improved reliability and fewer repairs, capital spending was also reduced by roughly $20 million.

At the same time, our ops team increased production by roughly 1.3 million barrels on the year. Results like this come from an entire organization working towards a common goal. And I thank our employees for accepting the challenge to responsibly attack costs, which includes our 900-plus teammates in the field, our ops excellence team, which is relatively small, but pound for pound exceptional, our finance team that made a step change in partnering with our sites and making information readily available, more broadly, everyone who leaned into owning and accomplishing this company-changing priority.

Looking ahead, we believe there's more opportunity on both cost and reliability. Our company has been operating the current asset base for a little over 3 years. And during each of these, our team has delivered stronger production and lower operating costs, and we expect for that to continue in 2026 despite what's going to be a very heavy turnaround year.

Let's turn to Slide 4. The operational improvements we just discussed are more than just volume and costs. Layering that capability on top of our leading commercial platform, which has been built out over decades, provides our sales team more volume and flexibility to support customers. We produced record levels of product in our Specialty Products & Solutions segment in 2025, and our commercial engine more than kept up as we sustained material margins above historic norms despite softer macro conditions in the broader specialty chemicals industry.

Our team placed this material successfully to new homes consistently as specialty sales volumes exceeded 20,000 barrels per day during every quarter of the year. The continued results in this business reflect years of investment in commercial excellence, culture and talent, integration of Performance Brands, targeted reliability and mix improvement initiatives and disciplined capital deployment. Our integrated asset network and ability to dynamically shift production into the highest value markets continues to be an advantage, and our extremely high customer experience scores are the result of a differentiated passion for customers, which is a core Calumet value.

Turning to Slide 5. We see that Montana Renewables also entered 2026 in a much different position than a year ago. Throughout last year, we reached a new level of operational reliability and cost competitiveness, demonstrating a financial leadership position in one of the most compressed renewable diesel margin environments on record. Operating costs averaged $0.41 per gallon in the second half of the year, a 60% improvement over 2 years ago. And further, we monetized more than $90 million of production tax credits, which was essentially everything we made, and we are pleased to see the 45 deregulations progress in early 2026.

On the strategic front, 2 quarters ago, we announced our streamlined MaxSAF 150 expansion would be bringing 120 million to 150 million gallons of annual SAF capacity online at a fraction of the originally contemplated cost. And last quarter, we mentioned that roughly 100 million gallons of new SAF contracts at $1 to $2 per gallon premium over renewable diesel were in final review with the DOE. These contracts are now complete with more in process that will lay in to support our volume ramp.

These contracts are all multiyear, and they include increased take-or-pay volumes from existing customers, new physical SPK off-takers and blended SAF offtakes combined with contracts for Scope 1 and Scope 3 credits through Book and Claim, which opens up premium renewable markets globally that complement the strong local markets we serve in Illinois, Minnesota, the Rockies, Canada, the Pacific Northwest and California. Montana Renewables will begin its turnaround in MaxSAF 150 project next week and remain down through late April, at which point, we'll rebuild inventories and begin ramping up SAF production and serving these new customers.

The regulatory environment for biofuels also continues to improve. I mentioned the 45Z rules are now clarified and out for final comment. Further and with plenty of press, the new renewable volume obligation is expected imminently. We anticipate that a stronger RVO will improve industry utilization and margin improvement as idle facilities are expected to be required to restart to meet increased mandates. Restarting production to meet demand volume is a very different and much improved market dynamic than one where companies are hanging on at variable costs while waiting for the rules to shift.

In fact, we've already seen improvement in the index margin on both the back of this expectation and the 2024 RIN carryforward overhang drifting into history. An increased base level of industry RD margins would be a welcome change for all. And at Montana Renewables, we're excited to stack on top of that the added margin from increased SaaS as we complete our project in the second quarter.

With that, I'll turn the call over to David.

Thanks, Todd. Turning to Slide 6. Overall, our quarter and full year results were strong, both financially and strategically. We generated $69.3 million of adjusted EBITDA with tax attributes in the quarter and $293.3 million for the full year 2025. Each segment contributed meaningfully to our financial results. We saw continued momentum and record production, both in our SPS segment and Montana Renewables as well as continued outperformance and growth in our Performance Brands segment. Our strong earnings results during the quarter also allowed us to reduce restricted group indebtedness by nearly $80 million in addition to the $220 million that was reduced for the full year 2025.

Before I get into more details, I wanted to highlight our planned capital expenditures for 2026 as we are forecasting total CapEx of $115 million to $145 million for all of Calumet, of which $70 million to $90 million is in the restricted group. This is $30 million to $40 million higher than normal, primarily due to a heavy turnaround year, which is scheduled maintenance at Shreveport, Cotton Valley, Princeton, Karnes City and Great Falls. Despite this, we expect total company production to increase year-over-year on the reliability improvements implemented over the past few years.

Looking at our Specialty Products & Solutions segment on Slide 7. Both our quarterly and full year results reflected the continued benefits of our commercial excellence initiatives and totaled $88.5 million for the quarter and $291.8 million for the full year. The team continues to leverage the inherent optionality in our manufacturing network to place volumes where they can generate the most value while serving our diversified customer base. In fact, more than 50% of our customers buy more than one product line from Calumet and many are long-term customers because of our unique ability to meet their product specifications.

Both our quarter and full year reflect a favorable product mix and even with certain specialty markets demonstrating some softness, our sales team has continued to place our products at over $60 a barrel margin. The benefits of our past reliability investments can also be seen in our strong operations as we've had 5 consecutive quarters of specialty volume greater than 20,000 barrels per day. It was also the second consecutive quarter of record production. With our cost reduction initiatives and increased production, our fixed cost per barrel declined by over $1 per barrel versus the prior year period.

Finally, our steady production environment again enabled the capture of stronger crack environment as fuel margins increased significantly year-over-year, which we view as upside to our integrated model. As I mentioned last quarter, we gained access to a new crude oil supply chain earlier this year, including the ability to target specific segregated or blended crudes in Cushing and further north in the DJ Basin and at the same time, reduce our pipeline tariff. In 2025, this improvement drove a $19 million decrease in transportation costs and provides even further ability to dial in our assets and feed to a specific use.

In our Performance Brands segment on Slide 8, we also saw the benefit of our commercial excellence initiatives, strong and growing brands and integration capabilities. Adjusted EBITDA was $5.4 million for the quarter and $47.9 million for the full year 2025. Keep in mind that fiscal year 2024 includes a full year of Royal Purple Industrial results and that the Royal Purple Industrial business was sold at the end of Q1 2025. Adjusting for the divestiture and insurance proceeds received, 2025 was the third consecutive year of growth in the segment as we offset the loss contribution from RPI through growth and cost reduction.

One of our standout product lines is once again our TruFuel business, which posted another record year. This ready-to-use fuel engineered for outdoor power equipment is available for 4-cycle and 2-cycle engines, and the product continues to resonate with both consumers and first responders, considering its proven ability to protect small engines from the corrosive nature of ethanol while ensuring peak performance of the equipment.

Moving to Slide 9. Our Montana/Renewables segment fourth quarter 2025 adjusted EBITDA with tax attributes was negative $5.4 million and positive $31.3 million for the full year 2025. On the MRL side, the company worked through trough renewable fuel industry conditions for most of the year and was -- also the quarter was burdened with disproportionate transaction costs related to the $65 million of PTCs that we sold during the quarter. We expect to monetize our production tax credits more ratably as the market is now normalized.

On a full year 2025 basis, adjusted EBITDA with tax attributes for MRL was nearly breakeven even as margins remain compressed by the low 2025 RVO, offset by our significant cost reduction efforts. Notably, the full year results do not reflect an additional $8.4 million of 2025 generated PTCs, which occurred after final regulations were posted after quarter end. Our MaxSAF 150 plans remain unchanged, and we are set to begin the project as we head into March and combine the required changes to our kit with the turnaround. We expect to complete the expansion in the second quarter and then steadily ramp volumes moving into the third quarter to meet new customer contracts, including the notable agreement we announced recently with World Energy, previously announced contract with FEG and an increase in offtake with Shell, amongst others.

Finally, on the Montana Asphalt side, both the fourth quarter and fiscal year results improved on the strength of improved asphalt margins and cost reduction initiatives following years of site reconfiguration. Further, we are seeing a widening of the WCS differential into 2026. With the site back at reasonable cost level and more normalized WCS, we expect the site to continue producing in the $30 million to $50 million of EBITDA range we've discussed routinely.

Let me now turn the call back to Todd for his concluding remarks.

Thanks, David. We're entering 2026 with the same high level of energy and excitement of a year ago, but with a much improved underlying fundamental. In Specialties, we expect the cost discipline embedded over the past 2 years to be durable, along with our continued commercial leadership position. While 2025 was another step change in operational excellence, we believe further opportunity remains to expand earnings through incremental reliability gains and customer-focused growth.

In addition to that, David mentioned a heavy turnaround year, and I'll highlight that turnaround excellence is the next step in our evolution. Our operations team has been planning these for some time. And during these events, we're making critical improvements that will underpin the next step change in operational performance. At Montana Renewables, our objectives are clear: First, execute MaxSAF 150 safely, on time and on budget in the second quarter; second, continue improving our already strong cost levels; and third, continue to leverage our early mover advantage in SAF as we grow. We expect that accomplishing these will drive a step change financial improvement even in past trough market conditions and will be increasingly exciting if the market's growing assumptions surrounding an improved RVO play out as expected.

Last, on the back of these key items, we'll continue to evaluate strategic pathways to unlock long-term value as the platform demonstrates sustained performance. Across Calumet, our capital allocation priorities remain disciplined and consistent. We expect to continue to drive durable free cash flow that underpins enhanced deleveraging. We plan to grow both our specialties, widening our competitive moat and execute on our MaxSAF 150 strategy at Montana Renewables. And we plan to execute this strategy and continually develop it with an eye towards midterm shareholder value creation.

With that, thank you for your time today. I'll turn the call back to the operator and see if we have any questions. Operator?

[Operator Instructions] Our first question today comes from Alexa Petrick from Goldman Sachs.

We wanted to ask 2 parts maybe. First, can you talk about the macro setup from here? There is still some regulatory uncertainties, but we got a bit of an update yesterday. And then from there, talk about what you're doing at an operational level. What are the gating items at MaxSAF? And what should we expect from here?

Alexa, it's Bruce. Look, the regulatory uncertainty as a lot of us call it, is just a feature of the landscape. The global energy transition is a regulated market, but it's collective governments, many, many governments acting directionally. And we feel like that's a very robust framework. We also feel like it adds the equivalent of a lot of margin volatility on top of kind of the base energy. So with that said, if you want to survive in that environment, be a low-cost provider, be well positioned, be able to shift gears quickly, and we think we are all 3.

And Alexa, it's Todd. Maybe I'll pile on a little bit. One of the things that we think is so important and exciting about our MaxSAF project at Montana Renewables is it adds an element of this durability on top of the RD margin volatility that Bruce mentioned. So you can kind of think about it a lot like our specialties business relative to fuels in the other half of Calumet.

So we have contracted volumes with meaningful margin in them that even if we kind of rewind the clock to last year, we're generating pretty meaningful free cash flow at Montana Renewables with the addition of the SAF volume and the contracts that we have. So like Bruce said, then you get to layer on the improvements that we're expecting from the RVO, and it creates a really nice dynamic. But there's kind of the risk reward, I'd say both sides of that coin are really improved with the SAF project. So thanks for the question.

Our next question comes from Conor Fitzpatrick from Bank of America.

It looks like we're in the phase of the RINs market and demand step-up progressing where we should sometime soon begin to see producers ramp utilization. And I think one way to glean that is from moves in feed prices. And they've gone up, but a lot of that is raw soybean cost pass-through, through the crush spread. So I was just wondering, there's not been a lot of press releases of idle plants coming back online. There's not a ton of evidence of utilization coming back within the overall market. I was wondering if your views are similar or different as it relates to -- and it's particularly important to our views of the cost of producing RINs at 2026 demand levels.

Conor, it's Bruce. Thank you for the question.

Let me answer with a concept of time scale. So we think the industry is running at variable margin now. People are not covering fixed costs and half of the group that's in the high cost structure and have been closing. We have been running full. So you got to be tactical on where do you stand in the supply stack exactly. So that ghost capacity, which exists in biodiesel plants that can come back quickly and renewable diesel plants that are online and can speed up, that's available, but it's not going to be called into the market until we see the RVO come out. We're all waiting for that. We feel good about what we're hearing. And let's see what the facts are shortly, we hope.

Yes. And I'd add, Conor, the -- it's Todd. The likelihood that people turn back on when they're covering fixed costs by $0.01 after some of the decisions made more broadly in the industry over the past couple of years, we think is very favorable to the market. I talked about this kind of the last couple of quarters in the prepared comments. But like Bruce said, as we put on variable margin, you don't incur our normal kind of supply stack doesn't govern today because people aren't making long-term rational economic decisions.

They're hanging on based on expectations that they're going to recover the investments in the fixed cost losses in the near term. As we see people have to restart and make that decision to restart to cover increased demand, we don't think that they're going to do that for a $0.01. We think that people are going to be very thoughtful and cautious and it creates quite a constructive outlook if you believe that. So we'll see what the final RVO is. I know there's a lot of rumors going around out there. But when we do, we don't think that the industry just kind of ramps up overnight. We think it's going to be kind of a very thoughtful volume ramp-up over time that will be beneficial to those who are in and operating every day.

That's good color. And for what it's worth, if you look historically at the changing marginal producer back in time, that producer tends to earn like $0.20 to $0.30 per gallon, just if you do some rough math on it. And then I guess my follow-up question was just moving parts for fourth quarter Montana Renewables margin. There were some -- market margins were pretty fluctuant and they were up for some weeks and down for other weeks. I was wondering just how that translated into margin capture for the business and operations.

So we're -- Conor, it's Bruce again. We're pretty good at shifting gears there. Our inbound and outbound supply chains are pretty short in terms of days of shipping. And we do track capture. We don't publish it, but I'll tell you that we capture more than 100% of the renewable diesel index margin. And that's because of our ability to shift gears quickly. Now it's worth noting the fourth quarter managed to hit the lowest renewable diesel index margin ever recorded in the history of the world.

And we're very much looking forward to the current administration restoring reasonable industry structure through the proposed RVO. We're bullish on that. And I think that's going to bring things back to historical. Remember that these margins were $2 to $3 a gallon on an index basis as recently as 3 years ago. So we just need to resume that kind of an environment and we're going to have an entirely different view of our success here.

And our next question comes from Sameer Joshi from H.C. Wainwright.

So this capacity expansion that I think Todd said will start next week and is likely to complete by late April. When should we see capacity ramp up at full scale? And does this bring along with it, of course, capacity expansion, but also operational savings? Like would you be lower than 41 gallons -- sorry, $0.41 per gallon?

Sameer, it's Todd. Good questions. I think we are -- I'll start at the end. On the cost curve, we're obviously heading in the right direction and just continue to almost every quarter see improvement over the one previous. So we expect just continued incremental improvement there. We're going to keep getting more efficient over time. And yes, as we increase our volume, then we'll see more unit efficiencies drop to the bottom line as we progress. So I don't think there's anything in this specific MaxSAF project that would say, hey, there's a major cost out. But we're certainly going to be making more margins.

We continue to improve our costs in any -- regardless of the project, just in a steady state. And to the extent that we're ramping up volume, I guess, that it helps at the unit level on the bottom line. So that's probably one side of your question. I guess -- the other on the ramp-up. Look, we've previously guided to 120 million to 150 million gallons annually, and that's where we expect to stay. So we're not naive enough to say that everything goes perfect and we come out of this thing in May and the very first day, we're producing 150 million gallons, but we also don't have too technically challenging of a turnaround.

There's -- this is pretty well controlled. It's pretty well designed and it's implementing -- a lot of implementing and expanding equipment that we know a lot about and isn't a major kind of risk, I'd say, like the last major project that we have going on. So I think what you'll see is coming online, we'll have a really nice strong volume. We'll ramp up accordingly. Exactly how long it takes us to get to the 120 million, 150 million gallons run rate, we don't think it's going to be too long. So we'll come up in May and keep everybody up to speed on where we're going and think in the second half of the year that we're going to be at that level.

Got it. And then I think you mentioned 100 million gallons of contracted multiyear contracts, and they are indexed at $1 to $2 premium -- RD premium. Will you help us or remind us how does the feedstock pricing play into this? And how is that likely to impact pricing, I mean, profitability?

Sameer, it's Bruce. So it's worth noting that we're performing now under the SAF contracts. But until we deconstrain the unit during this upcoming turnaround, we can't get our rate up to where we want it. So we're going to have the acceleration Todd mentioned. So as we lean into that, the book of business that our marketing guys have created is very interesting. We've intentionally executed contracts one by one, which are different than the other contracts.

In other words, we're trying to have a portfolio that is robust to some of the dynamics we talked about with Alexa a minute ago. And with that in mind, I think the expectation should be that all of that feathers in, if we can hit the high end of the engineering ranges, then we'll get towards the 150 million. And if we hit the lower end, it will be towards the 120 million. But the contract volume, the differential that you asked about, that's and we've had those folks lifting already.

And I'd add a little bit more, Sameer, on the feedstocks you asked about. We've been pretty successful linking those to the contracts. So again, we're in a location in Great Falls where we have access to a broad range of feedstocks, including all of the low CI ones that the SAF market typically wants. So we've been pretty successful landing those on long-term contracts as well and feel quite confident in our ability to both continually add offtake and volume as we ramp up, but to match that with contracts on the feed side, just given kind of the robustness around our -- the number of options that we have in the region.

Sounds good. Congrats on the progress operationally and as well as leveraging.

[Operator Instructions] Our next question comes from Jason Gabelman from TD Cowen.

Maybe shifting over to the base business. The specialty margin was strong once again, above $60 a barrel. What's going on in the business that's enabling you to sustain those higher levels? And do you see that to continue to move higher over time? And then conversely, if you could just comment on the Performance Brands weakness in the quarter.

Jason, Scott here. So a few answers. In terms of the strength of the specialty piece within SPS, this hasn't just been like a 1 quarter or 1-year high performance. I think you've covered us for a while, you've seen the progression over the past 5 years and frankly, the transformation of the business, Todd talked about it in the prepared remarks, really, at the end of the day, our commercial excellence focus and the initiatives that we've done over the years and couple that with our integration and optionality has proven to be highly successful, highly durable through really almost any type of market and then the improving production reliability as well have added the volumes to it.

So we remain really positive and constructive overall within that piece of the business. As we look heading into the early part of this year, we expect our high performance to continue. Certainly, we've got some headwind early on in 2026 with the crude oil runoff, some short-term headwind. But overall, we feel really good about the business and the work that's been done in that business that it's going to continue to outperform the market.

I think on the Performance Brands, we were really pleased with the year. We think we're essentially at a place now, Jason, where we've essentially offset even as we said that we would do, offset the Royal Purple Industrial sale and the margin that went away with that. So feel really good about the year overall. We did see in the fourth quarter, though, as you pointed out, a lot of the customer base, retail, in particular, that really destocked late in the year. So some challenges there, but we're feeling good about the start of this year and the orders that we're seeing. So we're optimistic about the '26 results.

Got it. And just on the '26 outlook, you mentioned the turnaround, but you should have higher volumes despite that. Is there any impact to the margin outlook given those turnarounds and perhaps having to produce a different slate of products than you typically do?

Yes. I would say the simple answer is no. There shouldn't be much of an impact despite turnarounds and some of the volatility going on, no.

Got it. And my follow-up is just going back to the SAF contracts because I think one of the items we struggle with is just the confidence around that $1 to $2 a gallon premium that you've cited. And so I was hoping you could just clarify kind of how the contracts are structured. Is it -- when you talk about a premium over renewable diesel, are you indexing the contract to the renewable diesel margin, including the RIN, the LCFS credit, the PTC? Or is it more nuanced than that?

Jason, Bruce here. I'll give you a framework for that. So great question. Looking backwards, it was fully indexed. I mentioned earlier, we were intentionally diversifying the contract structures collectively. We want them to be different. So for example, FEG is a Scope 1 and 3 emissions certificate that we pull off. So that means we take that SAF, we sell it, we get all of the credits, RINs, LCFS, et cetera, producers tax credit. And on top of that, we get the certificate. So that stacks up a little differently. And I could go around the table.

And as I said, each one is intentionally designed to act differently in different market conditions. We think the portfolio will be more robust and more stable to prospective regulatory changes and evolution. So with that said, the guidance, we really don't want to start identifying specifics here, but the guidance has held for a long time. And one of the reasons for that is real simple.

SAF is an excellent renewable diesel blend component, super high-quality properties, and it cannot go into the market below RD. It can't. Every once in a while, I pick up some publication where somebody calculated -- we used to call this dry lab back in the chemistry class, somebody calculated that SAF is lower than diesel, and that's crazy because the operator is going to take the SAF tank, pump it into the diesel tank and capture that this afternoon on the day shift, right? So it's always more, and we're just arguing how much.

And I think if I could add just a little bit, the largest customer, I think your question around just the fixed dip, are the underlying components similar. Like Bruce said, we're intentionally diversifying. At the same time, we're quite confident in the $1 to $2 a gallon range just because of how these contracts come together. So a little more color on that. Our largest customers are very similar to kind of what you just said. There -- if you look at their contracts underlying the premium, it looks a lot like RD contracts plus the fixed premium on top of that.

So in those -- in that group, we're quite excited to have the exposure to the upside on the RD plus the fixed premium, which you're kind of alluding to earlier, that fixed premium plays out even in scenarios if we rewound back to last year and looked at kind of trough index margin environments. And then the other thing I'd say is Bruce highlighted on the Scope 1 and Scope 3 credit sales, there's naturally quite a correlation. We want diversification. We want exposure to those markets. And I think I've said in the past, we see it a lot like our specialties business where we can do some things that others probably don't want to when we're transacting in truckload volumes and controlling quality and transloading and doing those types of things on a -- that require a little bit more hands-on service.

So it fits us really well. That being said, there's obviously a high correlation between the value of those credits and the fixed premium that other customers are willing to pay. So it's no coincidence that as we look at both of those, they lie comfortably in the $1 to $2 a gallon range that we've talked about. And I'll highlight, these are fixed contracts, right? And we've -- I think that was probably part of your question, but this isn't a spot gasoline rack. These are contracts. They're multiyear contracts. They have commitments to perform on both sides. And we're quite confident in the ability to capture that margin.

And with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to John Kompa for closing remarks.

Thank you, Jamie. On behalf of Todd and the entire management team, I'd like to thank everyone for their interest today in Calumet. Have a great rest of the day. Thanks.

The conference has now concluded. We do thank you for attending today's presentation. You may now disconnect your lines.

Good morning, and welcome to the Calumet Inc. Third Quarter 2025 Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to John Kompa, Investor Relations for Calumet. Please go ahead.

Thanks, Chloe. Good morning, everyone. Thanks for joining our call today. With me on today's call are Todd Borgmann, CEO; David Lunin, EVP and Chief Financial Officer; Bruce Fleming, EVP, Montana Renewables and Corporate Development; and Scott Obermeier, EVP of Specialties.

You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the IR section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours.

Turning to the presentation. On Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our press release that was issued this morning as well as our latest filings with the Securities and Exchange Commission for a list of factors that may affect our results and cause them to differ from our expectations.

As we turn to Slide 3, I'll now pass the call to Todd.

Thanks, John, and welcome to Calumet's Third Quarter 2025 Earnings Call. This past quarter was a strong one, both financially and strategically. Calumet generated $92.5 million of adjusted EBITDA with tax attributes, and strategically, we're hitting the key milestones laid out earlier this year. At Montana Renewables, we remain on schedule for our MaxSAF expansion in the first half of 2026, and our SAF marketing plan is pacing well ahead of schedule as the team has roughly 100 million gallons of post-expansion volumes placed through contracts, which are fully complete or in the final review step within our DOE process. Across Calumet, our cost and reliability initiatives are outperforming expectations. Our commercial organization continues to sell growing production into stable high-margin accounts.

Let me dig deeper into these themes, starting with costs before turning it over to David for the financials. In the third quarter, Calumet removed another $24 million of operating costs from the system versus the same quarter last year. Quite frankly, operations improved rapidly throughout 2024, so much so that while we expected year-over-year progress to continue, we did expect a little tapering in the second half. Instead, the rate of savings accelerated this past quarter, which is a testament to the ops talent we have throughout the country and their willingness to take this initiative head on.

Year-to-date, operating costs are $60 million lower versus last year, and we've mapped out a couple more years worth of ops excellence opportunities to continue moving the ball forward from here. Deeply connected to costs and just as important is reliability, which has advanced as well. Year-to-date production is up nearly 600,000 barrels versus last year, much of which is in our specialties business. On a unit basis, the combination of cost and reliability initiatives have reduced operating costs by $3.37 a barrel throughout the system.

Specifically, to our Specialty Products & Solutions segment, the third quarter marked a record production quarter. Despite softness reported across much of the broader specialty chemicals world over the past year, our commercial team again sold over 20,000 barrels a day at margins well above $60 per barrel, while also rebuilding some inventory following the Freeport turnaround.

We also saw strong fuel performance on both the margin and volume front. This reinforces the core advantage of Calumet's integrated model. Specialties provide stable, strong and growing baseline earnings, while fuels deliver more variable upside. Today, that excess cash flow is being used to reduce debt. Over time, it will fund further specialties growth.

Last, in Specialties, I'd be remiss to not note continued growth in our Performance Brands segment. Year-to-date EBITDA is up versus last year despite divesting the Royal Purple Industrial business earlier in 2025. We've implemented our top-tier commercial excellence program across our brands and leveraged our deep specialties footprint, which is yielding tremendous results. Further, TRUFUEL is on track for another record EBITDA year even in a year that's been void of major Gulf Coast weather events as the brand continues to grow its position as a channel leader and is benefiting from capturing space to over 4,000 new Walmart stores.

Let's turn to Slide 4 and dig a little deeper into Montana Renewables. During the quarter, we saw more key regulatory signals towards the industry recovery. Specifically to MRL, we continue to fortify the advantage we have in all margin environments with great logistics costs and product mix. While the future is bright, the industry continued to see weakness in renewable diesel margins. In fact, during the third quarter, realized margins across the industry were actually a bit lower than even the normal index margin formula would suggest as the feedstock physical basis widened out, which means feedstocks were about $0.20 a gallon more expensive than the traditional CBOT marker would suggest across the industry. We've seen this revert back during October, and we're back to the more normal environment where CBOT index margin is the correct industry signal.

On an industry level, biomass-based diesel production remains cut back at roughly 60% utilization. 2025 industry production volumes seem to be stabilizing just above 350 million gallons a month, which on an annualized basis is right about -- is right for the currently roughly 4.5 billion gallon implied RVO, which is made up of about 3.5 billion gallons of D4 RVO, plus roughly 1 billion gallons of shortfall in other RIN classes, which are ultimately covered by D4 RINs.

Separately, the carryforward of 2024 RINs, which will expire shortly, creates temporary length in the D4 RIN market. Against this backdrop of low industry utilization, we continue to see shutdowns occurring in industry. We look forward to an environment where biomass-based diesel demand increases through a stronger RVO. Further, the regulators appear to be bullish on reallocation of the small refinery extensions, which would add to the RVO. These steps are expected to increase demand to the point where idle facilities would need to restart to meet the mandated demand.

These restart decisions mean biodiesel producers need to be convinced they can confidently cover fixed costs. If not, the RIN will need to go higher or feedstock lower than. This is a stark contrast to the past 2 years, where we've seen massive shutdowns, but also many hanging on at the margin and barely covering variable costs with the expectation of an improved future environment. Of course, in the past, we routinely saw stable margins incentivizing the small biodiesel players to run in order to fill the D4 RIN gap, and we're optimistic that when we see the finalized RVO, margins will revert positively as they've done historically before the prior administration's 2023 RVO error.

Next, during the quarter, we completed our first $25 million PTC sale, proving this method of monetizing PTCs is viable as expected. We subsequently sold another $15 million in October and continue to see our credits trending towards a more normal tax credit environment after the 45Z credit was extended through the Big Beautiful Bill. Finally, momentum continues to build as we approach the launch of our MaxSAF expansion in the first half of next year.

During the third quarter, we completed a test run to confirm our ability to generate 120 million to 150 million annual gallons of SAF. To complete this test, we slowed down the plant for about a week, which cost us a couple of million dollars worth of volume, but the test was successful and confirmed our ability to meet the 120 million to 150 million gallon SAF target and supplied important data that's being used in the final detailed engineering and optimization of our project.

In addition to the technical work to derisk the SAF project, the team also is tracking well ahead of plan in placing the expanded volume. As I mentioned earlier, we have approximately 75% of our MaxSAF expansion either contracted or within the final DOE review process as we sit here today, and we're comfortably positioned to have all of the volume placed the next time we talk.

Like we mentioned last quarter, our offtake is shaping up to be a diversified slate of direct physical customers, airlines, FBOs and Scope 3 customers of varying sizes, some of which are large multinationals who you might routinely envision when you think of carbon reduction initiatives and some of which are more boutique customers. In many ways, the SAF business highly resembles our Specialty Products business, where the ability to be flexible on logistics, go-to-market in varying ways to suit a wide range of customer needs and sell in all types of sizes make us preferred and differentiated supplier.

Unlike a large fuels business, this volume doesn't all just go in a pipe and disappear. It's a concerted sales effort where we work with one airport at a time, one airline at a time or one SAF credit buyer at a time. In the supply chain, we've managed individual railcars and trucks, carefully control quality and blend the product through a deep logistical network, that creates value in this business, and we at Calumet have been doing it for decades.

In fact, you may have seen a press release last week where our physical truck rack opens for SAF sales in Montana. What this means is that we can sell physical barrels in truckload volumes and in some cases, to the same regional outlets we've been selling for years. We can deliver the full physical barrel and leave the credits with the customer or pull off the Scope 1 and Scope 3 credits, sell those and generate the same SAF premium and save a lot of money on logistics.

Of course, we also continue to sell physical SAF barrels via rail into the West Coast, Midwest and Canada, and we expect it to continue as a large and important piece of our business. We could sell all of our volume to either of these markets. At the end of the day, we're optimizing across them to find the most diversified, stable and highest netback customer base for Montana Renewables. We continue to place the volume with the SAF premium in the $1 to $2 per gallon range we've discussed historically.

This SAF premium is one that's received a lot of discussion over time. We've discussed the chart on this slide before, which suggests that global supply and demand is largely balanced in 2025, and that turns to a supply deficit in 2026 as that gap grows each year as European mandates and other global mandates step up. Interestingly, early on, we received questions around this outlook, which really fit into 3 general categories. One, was will Europe really increase their volume mandate. Two, will voluntary demand grow; and three, weren't we underestimating new supply.

Let's start from the back. Our view when modeling the supply-demand balance was very conservative on voluntary demand, and therefore, the base model also doesn't add new build supply. We conservatively assume voluntary demand remained unchanged from 2024 throughout the graph. If that's the case, we would expect new supply to come online. In reality, what's occurred is a bit more bullish. We've seen cancellations or delays of global mega projects as a pause and observe international growth and domestic tariffs and rent policy.

Also, we've seen voluntary demand growing nicely. I mentioned earlier that we've adjusted our strategy to take advantage of this as we see a real opportunity with truck and railcar quantities that SAF in the voluntary markets across a broad range of airports and FBOs, and we're selling quite a few Scope 3 credits to airlines and large multinationals on a voluntary basis. In fact, Montana Renewables SAF has set up on every major Scope 1 and Scope 3 registry that exists. We believe this readiness, the relationships and the progress on logistics all equate to a meaningful early mover advantage, and we look forward to capturing this immediately upon startup of our MaxSAF 150 project.

The last question I mentioned above is European demand. I think we've seen clear signs that volume mandates are, in fact, increasing in Europe. In fact, we've seen European SAF prices increase approximately 60% over the past 6 months, while feedstock prices have remained essentially flat. We've even seen meaningful fines defined for participants that don't need their quotas, which have been said to be up to $2,700 per ton or for us Imperial measurement tinkers, nearly $8 a gallon. Even then, the participant doesn't shed a requirement to purchase the SAF.

We believe these developments mean that the SAF premiums we're contracting will continue to be strong, and we look forward to relying on our roots as a customer-focused and service-oriented provider and parlaying that with our first-mover advantage into a rapidly expanding leadership position in sustainable aviation fuel.

With that, I'll turn the call over to David to take us deeper into the quarter. David?

Thanks, Todd. Before I get into the quarter results, let me address an error in our reported Q1 and Q2 2025 cash flow statements, which we discussed in an 8-K filing this morning. In accounting for a series of transactions during the first quarter, we misclassified debt extinguishment costs and inventory financing flows as cash flow from operating activities rather than cash flow from financing activity. The correction of the error will result in an approximate $80 million increase to cash flows from operations for the first quarter. Total free cash flow, the income statement, balance sheet and adjusted EBITDA all remain unchanged, and we will restate Q1 and Q2 financials alongside our Q3 filing.

With that, let's get into the quarter. We reported $92.5 million of adjusted EBITDA during the quarter, which was the strongest quarter in a number of years. We were able to reduce our restricted group debt by over $40 million despite the third quarter being our largest cash interest period of the year. Deleveraging continues to be a strategic priority, which we expect to continue in Q4 given the strong business performance. Further, during the quarter and after the ruling on the small refinery exemptions, we reduced our outstanding balance sheet RIN obligation by over $320 million.

As Todd mentioned, we also sold our first $25 million of PTCs at MRL, demonstrating the ability to turn those into cash as the market has opened up and started to normalize following the passage of the One Big Beautiful Bill Act. We look forward to more ratable monetization of our tax credits over the coming periods.

Turning to Slide 5. Our Specialty Products & Solutions segment generated $80.2 million of adjusted EBITDA during the quarter. The third quarter of 2025 reflected the strong commercial momentum in our Specialty Products portfolio as well as the benefits of our overall improved reliability and cost discipline. This was the fourth consecutive quarter that our Specialty Products posted sales volume exceeding 20,000 barrels per day, and coupled with strong margins, we continue to demonstrate the resiliency of our specialty business.

Despite broad industry chatter over the year that specialty markets have been a little soft, our sales team has demonstrated the continued ability to take advantage of our integrated asset base and diversified markets to continue to place our products at over $60 a barrel. Further, we posted third quarter production volume gains of 8% compared to the prior year. Our production has grown reliably over the past few years as we've improved our operating discipline. We look forward to continuing that trend through the remainder of the year and into next year.

Our steady production environment also enabled the capture of stronger crack environment as fuel margins increased significantly year-over-year, which we view as upside in our integrated model as we continually optimize our crude slate and product yields to capture market opportunities. To begin this year, we gained access to a new crude oil supply chain, including the ability to target specific segregated or blended crudes in Cushing and further north in the DJ Basin, at the same time, reducing our pipeline tariff.

Year-to-date, this improvement has driven $15.3 million decrease in transportation costs and provides even further ability to dial in our assets and feed to a specific use. We remain focused on driving additional operational improvements in the segment and look to further reduce our cost per barrel in the segment. As we said during our second quarter earnings call, strong operations to not only increase volume and reduce costs, but also supports increased margin as well as it allows our commercial team to place more volume to secure contracted homes rather than relying on spot market sales.

Moving to Slide 6 and our Performance Brands segment. We are pleased to post another strong quarter driven by our commercial excellence program and growing recognition of our brands. You'll remember that we sold the Royal Purple Industrial business earlier this year, and despite that EBITDA being fully reflected in the prior year financials and not this quarter, the segment was essentially flat year-over-year. We also continue to benefit from our integration strategy as we gear up to target markets that best unlock the intrinsic value that exists in our ability to vertically integrate where and when it makes sense to do so.

Last, as Todd mentioned earlier, the third quarter results reflected strong volumes and margins in our TRUFUEL brand. Not only is TRUFUEL growing on the shelves and with brand awareness, it's also benefiting from favorable procurement initiatives as the team has successfully leveraged its growing volume over the past couple of years.

Moving to Slide 7. Our Montana/Renewables segment generated adjusted EBITDA with tax attributes of $17.1 million in the third quarter compared to $14.6 million in the prior year period. Montana Renewables specifically posted slightly negative EBITDA with tax attributes of $3.5 million for our 87% share. As I mentioned earlier, we successfully monetized $25 million of PTCs during the third quarter and continue to monetize PTCs at improving price levels as we continue to expect to trend towards roughly 95% capture on those sales.

Earlier, you heard about the SAF test run that was important to derisking our project, and this run meant the units slowed down temporarily during the quarter, resulting in a couple of million dollars of lost margin alongside some wider-than-normal feedstock basis, which increased feed costs temporarily more than RIN offsets, and this has reset to more normal levels here recently.

While we've gained a lot of regulatory clarity this year, the industry is now just waiting for the rules to be finalized. With that in hand, we believe the business is set up for a strong recovery in 2026 based on the preliminary RVO targets that were announced by the Trump EPA. Fortunately, the core building blocks of our renewables business, marquee customers, cost-advantaged assets, unmatched feedstock and end market proximity and an improving yield slate remain intact. Combined with our relentless focus on cost reduction, we remain well positioned for the rebound that we expect to inevitably occur once we see the EPA land, the proverbial plane on the RVO. In fact, our operating costs, excluding SG&A, reached $0.40 per gallon and was our eighth straight quarter of improvement, excluding a turnaround in the fourth quarter of 2024.

In the interim, we continue to increase our outlets for SAF as demonstrated by our recent announcement of on-site blending and shipping capabilities. Initial distribution is through AEG's fuels network, and they are already proving to be a strong partner. On-site blending capabilities enables MaxSAF sales from the truck rack to local and regional service, further broadens the SAF market outside of major airports. This investment also allows us to strip credits and monetize SAF outside of direct offtakers.

On the Montana asphalt side, the third quarter is typically a good one. This quarter, in particular, we saw one of the strongest quarters in recent memory and a $14 million year-over-year gain. Our polymer modified asphalt business continues to be an advantage as well as the niche fuels distribution and with costs dramatically improved, we are pleased to see the impact on the bottom line this quarter.

Thank you for your time today. We remain focused on driving meaningful free cash flow generation as we conclude 2025 while steadily marching towards major value-creating opportunities that rest ahead for our shareholders.

With that, I'll turn the call back to the operator for any questions.

[Operator Instructions] The first question comes from Alexa Petrick with Goldman Sachs.

My first question is just on as we think about the MaxSAF expansion, and I think you've also talked about being on track to do 120 million to 150 million gallons of annualized SAF production in 2Q. What are the gating items? Just as we think about operations on the ground, what are some of the checklist items?

Alexa, this is Bruce. Very little, frankly. The unit as we stood it up back in 2022 was known to have some latent capacity. We've got a couple of tactical constraint removal things that we'll do during the scheduled turnaround, a few tens of millions of dollars. We're pretty excited about the leverage that implies on our cost of goods sold, including the capital charge. The reason we've ranged the output is we'll see about catalyst performance in the new configuration. Probably, we're being a little conservative there, but give us some room to grow into that maybe.

Then can you talk a little bit about some of these offtake agreements? I think there's also some commentary that you've been in some final conversations as well. Where do those stand?

Bruce again, thank you. The way that we've set this up is the same thing we did in 2022 pre-commissioning of the whole business. Last April, I asked our marketing team to go ahead and presell the increase in SAF that will be coming in spring. We're halfway through that 12-month program to get it placed, and we're well above halfway through signing people up. There's a mixture of executed and in-service contracts. There are a couple of material contracts that are effectively complete, but require the DOE to approve them, and so they're with the DOE.

Then we've got a pipeline of additional origination that we're pretty excited about. As I said a second ago, as we probably grow into maybe more capability than we've advertised, we've got the customer standing by to pick that up. The market shows every characteristic of being supply short. Again, I can't overemphasize how exciting this is.

The next question comes from Amit Dayal with H.C. Wainwright.

Congrats on the pretty solid results. For Montana Renewables, I know you touched on it, Todd, a little bit, but the gross margin issue, is it primarily just stemming from the current market conditions? Or is there anything in the sort of production ramp that you are playing with that may be causing near-term pressure?

Amit, it's Todd. No, I think nothing outside of what I talked about in the prepared remarks earlier. I'd say there were a couple of things abnormal to the quarter, one to us and one to industry as a whole. The one to us was we talked about something the volume a little bit to run the test that Bruce was talking about, which should give us a lot of confidence around our ability going forward on MaxSAF. That cost a couple of million gallons. Obviously, that's back to full capacity.

Then the other one that was more, I'd say, just broader industry is typically, all feed just trade off of an index to CBO. There's always a little bit of lag, and there can be volatility from time-to-time that over time just balances out. What we saw during the quarter was a lot of the physical basis. Feedstock was, we said in the call earlier, about $0.20 a gallon more expensive than our normal index margin thinking would imply.

Basically, $0.20 outside of CI parity. Now that's fixed. There'll be times when it's a little bit better than that, right? There's a little bit of volatility, of course, between the grains, and that's something that gives us an advantage to switch, quite frankly, over time. The industry did see that in the quarter. Again, you kind of add that to the downtime in volume, and that really speaks to probably the difference between this quarter and last quarter.

Just a follow-up sort of on that. What's the primary feedstock you're using for the MRL right now?

This is Bruce. To be honest, there's not a primary feedstock. One of our key competitive advantages is short supply chains that can access any of the principal classes of feed. We are very, very dynamic as we reoptimize each month. We think that we're gaining competitive advantage versus some of our peers with longer supply chains and we shift gears very, very quickly. With that said, if you wanted to think broadly, you can think 1/3 vegetable oil, 1/3 corn oil and 1/3 tallow and protein oils.

Just last one for me. When you sort of look at 2026, it looks like the operating side of the story is running pretty well. Are most of the risks and opportunities based on how the macro plays out for you guys?

Yes. I think as a whole, as we step into 2026, we're quite excited for a number of reasons. One, -- and you mentioned it, operationally, we've made some real improvements and expect to not only keep those, but build on those improvements going forward.

Then, of course, as we look at the regulatory environment, the overhang that's been in Montana Renewables specifically and all of biofuels, quite frankly, is being removed. The RVO that's plagued us for '24, '25 is going to get finalized here soon and will -- as we've said kind of routinely, expect to lift up industry margins. That's a major deal, right? We've barely been floating above breakeven this year, which we're happy to do in an extremely depressed environment, but as the whole industry returns with better macro environment, we're really going to be able to take advantage of that.

Then, of course, third is outside of index margin, just the ability to add SAF is a major ability, right? It's major upside, and it's also major derisking because it'll be less susceptible to just general already index margins going forward because of the SAF premium.

The next question comes from Jason Gabelman with TD Cowen.

I don't believe there was much talk about small refinery exemptions in your prepared remarks. Just wondering how that impacts, one, your financials directly? Two, your view on the RIN balances moving forward?

Jason, Bruce, I think that's probably a 2-parter, but redirect me if I'm off target. Our 2 small refineries, you could call them micro refineries by industry scale, have always qualified on the merits. We're confident we will continue to do so. Look, when you come to carry forward, we're all waiting for the EPA to process the public comments, which I'm sure they've received 17 terabytes of, but that's a policy question, and we'll all find out together. Am I responsive to your interest?

Yes. I guess I'm just wondering more directly, if there's any impact from the exemptions that were granted, if there was any financial impact to you, positive or negative?

Well, David covered that as you're aware, the balance sheet has had an inventory accounting style accrual while all of our cases were pending now that they've been resolved generally favorably. We've extinguished 80-plus percent of that and figure, I believe David was $329 million.

Jason, so you'll see that we reduced our outstanding RIN obligation related to the granted small refinery exemptions. It was kind of roughly a $320 million reduction in that outstanding obligation as reported on the balance sheet.

Then on the comments around kind of feedstocks impacting 3Q MRL results. It sounds like that's been alleviated in the near term here. I'm wondering what do you think caused that feedstock tightness? If we get a ramp-up in renewable diesel capacity as a result of a more bullish 2026 RVO, is there a potential that feedstock prices can tighten again and impact your margins? Or do you see the 3Q impacts as very transitory in nature?

Jason, it's Todd. I'll start off and see if Bruce wants to jump in. We think it's a transitory, but it happens, right? There's a general lag on the physical side that happens from time to time. We see the same thing in the crude oil markets when you get an overbuild or shortness just due to kind of a physical near-term [Glatter] shortage in like Cushing, for example.

I don't think that it's anything that we should think about changing any sort of long-term view. In fact, if you go back over time, there's never been a lasting difference to CBO outside of CI parity, and we wouldn't expect that to change. This is kind of just normal volatility. We've seen times where it's helpful this quarter, it was negative for the industry, but I don't see anything that would impact that going forward. In fact, we have so much more capacity and availability of feedstocks than even the currently forecasted RVO would suggest that it's hard to imagine a feedstock shortage. Even if there was, you should see that play out through kind of the base COP margin and not some sort of physical basis differential.

[Operator Instructions] The next question comes from Greg Brody with Bank of America.

I don't normally do this, but congrats. A lot of great developments this quarter. In particular, probably removing the Gregg Brody slide is one of the big ones. Just operationally, you guys really demonstrated a lot of improvement, so congrats to everybody. Maybe you mentioned the deleveraging is still the priority. You're starting to generate cash. Can you talk a little bit about what you think is next to sort of help address the maturities? Just to give us a sense of how you're thinking about it today?

Yes, sure. I'll take it and see if David wants to jump in. I think mentioned last quarter, we expect cash flow from the business, particularly in the second half to be strong. That, along with the RPI sale earlier in the year is adequate to knock out the '26 notes. We kind of look past that. As you think about '27 maturity management after that and our ability to delever, it includes cash flows from organic operations. It includes potential strategic activity, like we said, as long as it's accretive to both the debt and equity and doesn't take away anything from our integrated story. That remains an option.

Of course, ultimately, it's a partial monetization of Montana Renewables. Not a lot has changed there. We're just working the game plan here as we look forward to an ultimate -- taking that ultimate step on MRL. As we talked about a lot during the call, the next milestone in doing that is demonstrating the success of this MaxSAF expansion and seeing the RVO firmed up and I think with a couple of strong quarters on the heels of those events, we'll be in place to take that final step.

You're refinancing some of the '27s. -- is that's part of the equation potentially?

Yes. Look, I think refinancings are always and just managing the timing are always part of just the general menu. As we sit right here today, we don't have anything active or anything specifically in the plan. Bigger picture, we're looking to execute the longer-term deleveraging strategy, which is a reduction of an additional $600 million to $800 million of debt. We have plenty of opportunities to do that.

If there was some sort of opportunity or reason to have refinancing as part of that, then we'd certainly be happy to do that in a step of optimization, but most importantly, we're focused on kind of the organic cash flows, potential strategic activity and monetization of Montana Renewables to permanently reduce that debt.

One last one for you. You mentioned you've started to be able to monetize the PTCs. What's been the realizations on those in terms of the -- how much of a discount to the actual PTC EBITDA are they -- are you realizing?

Yes. You have to go back, the PTCs were kind of new at the beginning of this year and kind of weren't fully clarified until kind of the Big Beautiful Bill. Even today, some of the ultimate kind of final rules are even completed. I think we expect over time to kind of monetize kind of closer to 95%. I think the initial monetizations were probably closer to 90% and then we continue to close the gap as we monetize more and have more term sheets as we look further out. We've seen the market get a lot deeper and a lot more interest as they normalize earlier in the year was still new for people to digest.

IT seems like the activity picked up in monetization. Should we expect it pretty consistently now every quarter? Or are there some market dynamics we need to think about?

No. I think we expect to kind of monetize them more ratably. Todd mentioned in his remarks that we also monetized a portion in October. We're just kind of working through them.

This concludes our question-and-answer session. I would like to turn the conference back over to John Kompa, Investor Relations for Calumet for any closing remarks.

Thank you, Chloe. On behalf of Todd and the entire management team, I'd like to thank our shareholders for joining our call today and our continued support. Have a great rest of the day. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to Calumet Inc.'s Second Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to John Kompa, Investor Relations for Calumet. Please go ahead.

Thank you, Steve. Good morning, everyone. Thanks for joining our call today.

With me on today's call are Todd Borgmann, CEO; David Lunin, EVP and Chief Financial Officer; and Scott Obermeier, EVP of Specialties. Please note, Bruce Fleming, EVP, Montana/Renewables and Corporate Development, has an unavoidable company obligation today. Todd Borgmann will address questions regarding Montana/Renewables in his absence.

You may now download the slides that accompany the remarks made on today's conference call, which can be accessed in the IR section of our website at calumet.com. Also, a webcast replay of this call will be available on our site within a few hours.

Turning to the presentation on Slide 2, you can find our cautionary statements. I'd like to remind everyone that during this call, we may provide various forward-looking statements. Please refer to our press release that was issued this morning as well as our latest filings with the SEC for a list of factors that may affect our actual results and cause them to differ from our expectations.

As we turn to Slide 3, I'll now pass the call to Todd.

Thanks, John. Good morning, and welcome to our second quarter 2025 earnings call. This quarter was one of sound execution paralleled with foundational and supportive steps taken on the regulatory front, both of which we'll walk through on today's call.

Calumet earned $76.5 million of adjusted EBITDA with tax attributes during the second quarter. This result was a function of continued execution of our near-term initiatives on reliability, cost discipline and commercial excellence across the company. $8.3 million of our quarterly result was earned at Montana/Renewables, which we'll touch on more momentarily, leaving the lion's share of the quarterly result being earned in our specialties business despite a full month turnaround at our largest facility in Shreveport.

Specialty margins continue to prove resilient overall and our product and market diversification has been critical to this as pockets of weakness in the more commoditized paraffinic lube space have been more than offset with continued strength across our specialized lines of naphthenics, solvents, waxes and food-grade in pharmaceutical products.

Further, specialty sales volume within our SPS segment marked the third straight quarter over 20,000 barrels a day. And despite a late start to the outdoor lawn and garden season, our Performance Brands segment posted its second highest quarterly sales volume in its modern form, second only to this quarter last year. These results are a combination of continued deployment of our integrated specialty strategy in the industrial lubricants and separately, rapid growth of our TruFuel brand.

One area we haven't talked about much when it comes to commercial excellence is the impact of our program outside our core specialties offering. Specifically, I'll note the results from the change in our approach to our Southern asphalt margin. This is a fairly commoditized space, but with 3 crude fed refineries in northwest Louisiana, we have a number of streams to choose from and have proven the ability to more intentionally blend products and offer a broader offering in a market that changes rapidly between seasons.

Asphalt is yielding improved margins to the tune of $5 million plus per year, which as a singular item isn't a game-changing scale, but represents a great example of the type of continuous optimizations that add up as we deploy the strength of our product diversity, innovative mindset and commercial excellence engine across our business.

Next, the cost and reliability initiatives rolled out to begin this year continue to track ahead of plan. Company-wide, our operating costs have been reduced $42 million through the first half of the year versus the first half of last year despite a $7 million increase in the cost of natural gas and electricity, our largest variable expenses. Further, through the halfway point, company-wide production has slightly increased year-over-year despite the full month turnaround at our largest plant.

I want to thank our teams on the ground who are leading these efforts and continue to deliver on the challenge to fortify our operation. Flexibility and customer centricity don't have to come at the expense of efficiency and reliability. We can be both and the 1,000-plus men and women in our operations team are proving that daily. We believe more possible when it comes to operational excellence, but the team is strong out of the gate, and we look forward to building on the successes thus far.

Let's turn to Slide 4 and talk more about the recent developments at Montana/Renewables as the second quarter was a busy one on the regulatory front. While the Renewable Diesel industry saw its lowest quarterly index margin to date, Montana/Renewables was able to generate a positive $8.3 million of adjusted EBITDA with tax attributes.

Our ability to remain positive in this brutal market is a function of our advantaged feed flexibility, leading SAF position, ultra-competitive costs and the highest throughput volumes we've achieved yet. More simply, Montana/Renewables has firmly established itself as one of the most competitively advantaged producers in the space.

Dave will take you through these quarterly results shortly. But before that, I'd like to take a moment to hit on the continued strategic progress we're making around our streamlined MaxSAF 150 project and the regulatory outlook, which came more clearly into focus in the second quarter. With the advantaged operational and commercial position of Montana/Renewables proven out, the remaining critical steps prior to potential monetization are margin recovery, which requires regulatory clarity and taking the next step in our SAF leadership journey.

Starting with our MaxSAF 150 project, we remain on track to start up in the first half of 2026. When we expect to generate 120 million to 150 million annual gallons of SAF for a capital cost of $20 million to $30 million. With the purchase order for the catalyst placed and engineering underway, we're excited for this next milestone, and we've begun the SAF marketing cycle. Earlier in the quarter, there was plenty of speculation around SAF demand as the big bill legislation was negotiated, and we saw a temporary pause as market participants awaited the legislation.

With that behind us, conversations are now feeling more normal. As we've discussed in the past, the SAF market is close to balance now, and the world is gearing up for the next step in mandated demand that we'll see in international markets in January, and voluntary demand continues to feel robust. We don't want to do a public play-by-play of each potential contract we're negotiating. But what I can report is that we have active conversations regarding more potential volume than our increased supply can meet.

We continue to see SAF premiums in the previously reported $1 to $2 per gallon over renewable diesel range, and our customer slate is very likely to include a diversified portfolio, including large middle market aviation fuelers as we've had historically, direct airline sales, both large and regional and even some separated direct sales of Scope 3 and Scope 1 credits.

As we've done with renewable diesel, our SAF portfolio targets a diversified set of geographies, both in the U.S. and Canada, where we can capture maximum value from our location. On the renewable diesel front, we continue to be bullish around the return of industry margins, which are temporarily paused as the industry awaits the finalization of the RVO, clarity on small refinery exemptions and choose through the excess RINs that were created by imports last year, while the blenders tax credit was still in place. At current margin levels, some of the top players in the industry have reported rate reductions, which tells you empirically what you need to know about the current margin environment being unsustainable.

At Montana/Renewables, we continue to run at full rates as the incremental gallon remains positive, but there's not much room to spare at current margin levels, and we'll continue to make monthly run decisions based on near-term economic signals we receive from the market.

As we know, renewable diesel margins are largely a function of regulatory outlook. And while not perfect, the fundamental drivers became more clear during the quarter. I'm not sure whether or not it's gotten easier to predict and we'll see major margin reversal this year or when the new RVO steps up in January and the carry-forward RINs from 2024 are eliminated, but the regulatory actions taken thus far are supportive on balance.

Let me highlight a few of these. The first example was the One Big Beautiful Bill Act. The most important element of the bill to our industry was the extension of the PTC, highlighting that biofuels continue to receive bipartisan support. Of the roughly 20 tax credits established in the 2022 IRA legislation, nearly half were cut or reduced in a new bill. However, the 45Z credit impacting us not only remained intact but was extended through 2029, demonstrating the importance of growth in this space to the ag community, the energy transition and with nearly 7 billion gallons of domestic feedstock produced annually, a meaningful and growing component of American energy dominance. This extension through 2029 will mark 25 years of a blenders tax credit or production tax credit for biomass-based diesel.

Next in the bill, the 45Z credit is transferable. This is important to Montana/Renewables as we're not yet able to use the full credit to offset taxable income in these early days, and the credit is a critical part of our margin stack. In fact, we have over $50 million worth of PTCs built up on our balance sheet through the first half of the year as the market was waiting for the bill to be finalized to act. Upon completion, the market has picked back up. In fact, we just signed a term sheet on about half of our credits, and we look forward to completing the monetization of these and the rest of the credit portfolio in short order.

Also important was the continued language that imported overseas product and feed won't qualify for the producer's tax credit. This supports domestic ag and highlights the administration's focus on American energy dominance and independence. We estimate roughly 1 billion gallons of imports drove surplus and D4 RINs last year, and that surplus has been carried forward this year. But going forward, foreign production will not be incentivized to be dumped here again.

One regrettable component of the bill was the SAF PTC, whose formula is now equal to the renewable diesel PTC formula. Whereas previously, SAF generated a larger PTC than renewable diesel. It's now the same. For Montana/Renewables, this means the value of the PTC associated with our SAF production will be reduced by approximately $0.40 to $0.50 per gallon at our current carbon intensity. While we do expect that this will influence the SAF premium, we continue to see strong premiums to renewable diesel in the marketplace, which remain within our historically discussed $1 to $2 per gallon range. Interestingly, the changes to tax credits for SAF may also have the unintended consequence of reducing future supply in a market which looks solidly at a deficit as global mandates ramp up.

Next, let's switch from the One Big Beautiful Bill Act to the renewable volume obligation, where we received the first insights into the 2026 RVO from the Trump era. I'll start by saying the new administration at the EPA inherited a real mess between the 6 year backlog of unresolved SREs combined with a 2023 to 2025 RVO that's decimating the biodiesel industry. After some initial confusion around the demand generated by the RVO proposal, most now expect the proposed RVO would equate to roughly 4.5 billion gallons of biomass-based diesel. This is a nice 30% increase from the approximately 3.5 billion gallon D4 RVO that exists today and industry margins should react positively as industry capacity utilization increases.

We see the impact of these levels to the chart on the right, where we combine the D4 RVO just discussed with roughly 1 billion gallons of additional D4 demand that's required to meet the D6 RIN shortage to arrive at the total expected biomass-based diesel demand, both at today's and the proposed levels. What this chart does not include is the 1 year carry-forward RINs from the 2024 surplus, which practically offset significant 2025 demand.

The massive shutdowns we've seen in biodiesel and even some renewable diesel are a direct result of the 2023 to 2025 RVO being set too low. That all being said, we believe the new RVO should be much higher. North America is capable of producing roughly 7 billion gallons of biomass-based diesel feedstocks. And including biodiesel production, there's at least 7 billion gallons of industry capacity to process this domestic feed into product. This idea that 1 billion gallons of foreign feed will be required to generate the mandated RIN count is not supported by the data. In fact, we're exporting nearly 1 billion gallons of soybean oil alone.

In addition to that, and specifically to China exports, we're exporting over 22 million tons of soybeans to get crushed into well over 1 billion gallons of potential feed offshore. We have enough feed right here at home to dramatically increase the supply to our growing industry today and in addition, for future crush investment here in the U.S. that will serve a future step up.

The mandate can be increased to match capacity as we've done historically every year until the 2023 set rule under the Biden administration. The open comment period on the Trump EPA set 2 rule closes today, and we hope the D4 RVO level will be revisited to incentivize the continued growth of American energy, American jobs and the American farmer.

With that, I'll turn the call over to David to take us into the quarterly results. David?

Thanks, Todd. It's great to see the progress in Montana on all fronts as monetization of that asset continues to be the final step in our deleveraging strategy. Before I go through each of the segments, I'd like to highlight some recent activity as our deleveraging and maturity management strategy continues to unfold.

Last week, we announced a refresh of our Shreveport terminal assets financing, which was a nice optimizer within our broader plan. We had previously sold these assets to Stonebriar for $70 million back in 2021. And given the improvements in Shreveport production, the truck rack and related assets value increased to $120 million. Instead of repurchasing the asset in 1.5 years, we were able to add $80 million of new cash to the existing $40 million of principal and call another $80 million of our 2026 notes, reducing the outstanding balance to a manageable $124 million.

Add this to the accretive Royal Purple industrial asset monetization and deleveraging that occurred earlier this year, and we now will have called $230 million of the 2026 notes in the last few months. With our revolver capacity and approximately $50 million to $60 million of cash flow expected in the restricted group through the rest of the year, we shift our near-term strategic focus to broader deleveraging and managing the 2027 notes. With improving cash flows from the business and the renewable regulatory outlook solidifying, we remain confident in our plan to reach our ultimate goal of $800 million of restricted group debt. Further, the broader strategic activity that we've mentioned previously continues to progress well, and we'll discuss that more at an appropriate time.

Turning to Slide 6. Our Specialty Products & Solutions segment generated $66.8 million of adjusted EBITDA during the quarter. We continue to see strong performance, particularly among our specialty product lines, reflecting our commercial excellence program. In fact, this was the third consecutive quarter that our specialty products posted sales volume exceeding 20,000 barrels per day, reflecting our customer and application diversity and improved reliability. Further, we saw margins in our specialty products increased to more than $66 per barrel. These accomplishments made despite a full month turnaround at Shreveport in June. The team also successfully managed through a major disruption in service from a key rail provider that had issues across their network.

The rail service provider is a major transporter for our network and Calumet incurred meaningful costs as the team went above and beyond to arrange alternative logistics to keep our customers supplied. Thankfully, the railway is reporting that the worst of that is now behind us, and we're seeing service normalize. Regardless, Calumet will always do everything we can to deliver service to our valued customers.

Looking ahead, we continue to expect to operate at mid-cycle margins even amidst an industry backdrop that is below mid-cycle, highlighting our commercial advantage. Our operational improvement trend also continued in the second quarter as we reduced our fixed cost by approximately $10 million in the first half of 2025 compared to the prior year. Interestingly, strong operations not only increase volume and reduces costs, but increases margin as well as it allows our commercial team to place more volume to secure contracted homes at higher margins rather than keeping volume available for the spot market.

With the downtime associated with the turnaround, our quarterly results included only $11 million of total restricted group adjusted EBITDA plus tax attributes in June. The plant is now back online and successfully generating full revenue. Looking ahead, we expect and already have begun to see the unwind of approximately $30 million in the third quarter of 2025 from working capital build associated with the turnaround as we have no more turnarounds planned for the rest of the year and are running at full rates.

Finally, as tariffs have been topical again, I wanted to remind our shareholders that we do not believe they are impactful to our specialties business considering our U.S.-based manufacturing and feedstock supply footprint, customer base product diversity and the fact that nearly all of our sales in feedstock are domestic or protected by USMCA.

Moving to Slide 7 and our Performance Brands segment. We are now firmly in the third year of our revised strategy that leverages commercial excellence and integration optionality across our specialties business. We posted strong quarterly results of $13.5 million, reflecting continued volume growth and ongoing commercial improvements in the business. As a reminder, we completed the sale of the industrial portion of the Royal Purple business, and this is the first quarterly period to not include Royal Purple industrial results following the divestiture. Our second quarter results reflected strong volumes and margins across the business, particularly for our TruFuel brand.

Moving to Slide 8. Our Montana/Renewables segment adjusted with tax attributes generated $16.3 million in the second quarter compared to $8.7 million in the prior year period. Montana/Renewables specifically generated adjusted EBITDA with tax attributes of $8.3 million, making the 87% attributable portion to Calumet worth $7.2 million. Montana/Renewables continued ability to generate positive EBITDA with tax attributes even in the lowest industry margin we've ever seen is representative of our competitive position and reflects our unique assets, logistical advantage and strong customer relationships.

In addition, as we previously disclosed, we continue to expect to monetize the value of the production tax credits. And as Todd mentioned earlier, our monetization efforts are in advanced stages of discussion. Despite the worst margin environment, the primary driver of the year-over-year improvement in this segment continues to be with the tremendous cost savings we've made in the business and improvements in operations. You can see in the lower right-hand side of the renewable slide, we have reduced op costs and SG&A down well north of $1 a gallon to current levels.

Focusing just on operating costs, we recorded $0.43 a gallon. This represents our seventh consecutive quarter of operational cost improvement trend, excluding the turnaround in the fourth quarter of 2024. When factoring in our lean SG&A position, we posted operating plus SG&A costs of approximately $0.51 per gallon, also a record low for the business and proves our low-cost position in the industry.

Our plans also remain on track for our MaxSAF expansion as we expect to bring on 120 million to 150 million gallons of annual SAF production in the second quarter of 2026 for an investment of $20 million to $30 million. So there is no change to what [ prequel ] was previously announced, and we're excited to continue this exciting step.

On the Montana Asphalt side, the business saw a $6.5 million year-over-year improvement. The same discipline and rigor that we've deployed with MRLs is also being applied in the asphalt side on costs and is generating these improved results.

Thank you for your time today. With a strong quarter, meaningful progress on the regulatory front, thoughtful maturity management and a clear expectation of meaningful free cash flow generation in the business, we look forward to the major value-creating opportunities that rest ahead for our shareholders.

With that, I'll turn the call back to the operator for questions.

[Operator Instructions] The first question comes from Alexa Petrick with Goldman Sachs.

First one, just wanted to ask on renewable diesel. We appreciate we're in a challenging macro right now, just given the uncertain regulatory environment. But would love your updated thoughts on what mid-cycle earnings looks like for the business? And then what do we need to see in the industry to get to more normalized earnings?

Alexa, it's Todd. Good question. Like you said, it's obviously a tough environment out there right now. And we think the driver of that is really just the market waiting for news on the permanent RVO and the SRE to respond plus working through that backlog of RINs that was carried forward from 2024. So I'd point to those as kind of the key drivers for recovery. We provide that chart every quarter that talks about the supply stack, the biomass-based diesel supply stack.

And basically, what we see is at the proposed RVO levels, you should see D4 demand of basically 5.5 billion gallons or so, which would suggest that you need a good chunk of biodiesel to run and meet that demand. That puts you in that $1.50 to $2 a gallon index margin range. We're ways away from that right now. But really, that's the range that we've seen throughout history up until kind of the 2023 RVO change things. So at those levels, I think we put some information out in the past that says at $1.50 a gallon index margin, Montana/Renewables should be making around $140 million, $150 million a year of adjusted EBITDA with tax attributes.

So I kind of point to that. And then obviously, if you increase back up to the historic $2 a gallon level, you're meaningfully higher than that. That's at our current yields. The other thing I'd point out is adding the SAF flexibility that we are really provides a meaningful kick to those margin numbers. When you're talking an extra $1 to $2 a gallon premium on an incremental 90 million to 100 million gallons or 120 million gallons of SAF, it's a pretty meaningful bump in margin, which is why we're so excited to be able to streamline this MaxSAF 150 project and move that forward. You talk about $1 a gallon plus on 100 million gallons. Obviously, that's the math. And we stack that on top of the core renewable diesel EBITDA that we just talked about.

Okay. That's great. And then my follow-up, just on the balance sheet. It's nice to see the partial redemption of the '26 notes. Can you talk about the path to further debt paydown? And then particularly, what considerations do you guys think about for potential future divestitures?

Yes. Good question. The -- like David said, there's not too much remaining on the 2026 is after we called the $230 million so far this year. So really nice progress on that front. I think if you look at that, you could say we have enough availability in free cash flow in the second half of the year to manage that in itself. So we kind of look forward and say what next on the 2027. We've talked about potential strategic asset sales. I don't want to get too far into that. But I can tell you that's certainly an option. We're expecting meaningful cash flow next year and throughout the rest of this year.

And then also, you have the Montana/Renewables monetization, which we continue to expect is the ultimate step to reach our final deleveraging target of $800 million. So those are kind of the 3, I'd say, large steps. There is other things that can be done as well and kind of the -- just the maturity management mode. But as far as ultimate deleveraging, that's really what we're looking at.

The next question comes from Conor Fitzpatrick with Bank of America.

This was another quarter where OpEx per gallon was reduced in the renewables business. Cost reductions have had momentum for a while now. But I think it would help us to explain the types of improvements and changes you've made in your operations year-to-date that are driving these cost reductions.

Conor, it's Todd again. Thanks for the question. And you're right. It's fundamental really to our success, particularly in this tight market, what we've been able to do on costs and really establish ourselves as one of the cost leaders in the space, which stacked on top of our geographic advantage and feedstock flexibility and ability to generate SAF, we're quite excited about.

Specifically, I'd say there are -- the primary improvement that we've made on cost is real minimization of water. We've spent a lot of time and effort understanding water treatment, reducing the amount of water we have to treat in general. That's been a major step down. And then with smaller amounts, you can obviously treat it more efficiently as well. In fact, we put out something not too long ago that said as part of the expansion in the future, we -- highlighting that on treatment -- on-site treatment of water is a piece of that plan, which hasn't changed. That's always been the case.

So water treatment is the primary improvement. We've also just got more efficient with the operation. You learn a lot, and we came up the learning scale really quickly in Montana over the past couple of years. But we had a number of folks on site, third-party contractors, et cetera, to just help us with the learning curve over the last year. And we've had a meaningful contractor reduction on site this year. And obviously, in the numbers -- the production numbers and the cost numbers, we see that we didn't need them. So the teams just done a really spectacular job of getting up to speed, familiarizing themselves with the assets and keeping costs down.

Great. That's clear. And then as a follow-up, it looks like there's a few regions to play for SAF in the United States. The West Coast has LCFS programs and transpacific voluntary and mandatory markets. The Gulf Coast has voluntary and mandatory markets in Europe. And there are several U.S. Midwest states that have purchasers or producers tax credits. And then SAF prices nationally trade at a premium from incremental voluntary demand versus RD and conventional jet. So how would you characterize the attractiveness of the different regions from where you sit? And do you think the proximity to the Midwest will win out versus other regions over time or at least provide a more stable end market?

Yes, great question. The Midwest is a really interesting market just because of the state tax credit, right? So I think you used the word just stability or kind of stabilize the whole outlook. That tax credit goes a long way to do that. So yes, that will be a piece of the solution. California is obviously a big piece as well. Oregon, Washington, we've talked about all of these areas. Honestly, just like renewable diesel, we're pretty flexible on our output, and we take it to whatever areas we're geographically advantaged in. That's what we're doing now with our partners at Shell, and that's what we expect to do in the future as we add to the portfolio that we're building on the marketing side.

The other thing I wouldn't forget about is Canada. We're right on the border there, and there's some real ability to partner with the right people in Canada, blend our product and service that market. And there's a pretty meaningful SAF premium still in Canada. So like always, at Montana/Renewables, the key to our advantage or one of the keys to our advantage is really that end market flexibility. And sitting right there on the BNSF, we can go east to Minnesota and Illinois. We can go west to California, Washington, Oregon, and we can even truck north to Canada. So very flexible, and I'd expect all of those to be part of the solution.

The next question comes from Gregg Brody with Bank of America.

Nice quarter. It's nice to see the operations coming together in Specialty. I was -- you gave a couple of numbers there on the restricted group that I just wanted to run through to make sure that's clear. So I think you said the second half of '25, you expect $50 million to $60 million of cash flow. And then you also mentioned the unwind of some working capital of $35 million. Is that part of that number? Or is that in addition to that?

Yes. It's part of that number. So we're already seeing some of that unwind from the working capital, just related to the turnaround and timing of building inventory in advance.

Got it. And then you suggested that you could deal with the remaining $125 million of the [ 26's ] this year. So the $50 million to $60 million is from restricted group. Should we expect cash from anything from renewable diesel business to be sent out? Or is the rest going to be solved for with possibly strategic actions?

It's a good question. It's possible to have cash out of Montana/Renewables. Honestly, the way we plan for it is just the fully controllable in today's market. So the way we plan for things is just what can we generate in the restricted group. So yes, to your point, you've got the $50 million, $60 million of cash flow. I think you said is that -- all in the business -- there will be additional to that from the $35 million of capital unwind. So I don't want you to think that there's only $15 million of free cash flow generated in the core business in the second half plus that $35 million of working capital unwind, right? So it's $50 million plus the rest. So we are expecting more cash flow in the second half. We do expect some strategic activity to help with that. But I'd also just point to our general liquidity and revolver balance for a very small amount.

Okay. And then just shifting to the PTC monetization. I think you said you had a term sheet for about half of it. Sort of 2 questions there. I think you had mentioned a discount the way to think about it, if I'm remembering like 5% to 7% versus what the book value is? And then just remind us if that's -- if I'm remembering that right, and if that's sort of a good way to think about it?

And then second part of that is, when do you think you'll address this -- the other half of the PTCs? And just in general, based on the way the market is coming together, should we expect that to be a quarterly -- to be done quarterly ratably with what your -- the actual income is?

Yes. Big Beautiful Bill was signed and provided a little bit more clarity around these PTCs. So we do expect to sell them all in the near future. And after we clear that backlog, yes, we expect it to be a quarterly transaction.

Got it. And one piece in for me. So I was wondering if you have your liquidity as of today, just -- or basically what's on the revolver?

It's just about $200 million.

The next question comes from Amit Dayal with H.C. Wainwright.

Pretty solid execution despite some -- and on that front, Todd, are there any particular catalysts we should be looking for with respect to any remaining sort of macro overhangs for you to start hitting your stride, especially with respect to Montana/Renewables. I mean it looks like on the cost side, you've already done pretty well in terms of bringing costs down. If some margin improvement starts showing up, I mean, it looks like there's a lot of operating leverage you could start generating. So any color on maybe this topic would be helpful.

Yes. I think that's the million-dollar question you've nailed it is, is when do we see the reversal in margins. Very comfortable and confident that with the regulatory actions we've seen here in the second quarter that it's a matter of when, not if on these, right? We talked earlier in Q&A about a 5.5 billion gallon RVO without an overhang, you're at substantially better volumes than prices -- margins than we are today just to stay compliant. So we're very bullish to long-term outlook.

I think the big question is just the overhang around when is that RVO going to be finalized. A lot of rumors still flowing around the SREs and how that interacts with the RVO, if at all. And then the market just has to work through this backlog. There is a year's worth of overproduction from 2024 RINs that have been carried into 2025. So the market is not acting like it would in a normal environment. When it has those RINs that it has to eat through in the current year, I'll say just expire, that essentially becomes part of the balance and the market doesn't have to respond to just normal fundamentals like it would. But that all ends at the end of this year when we step into 2026, those old RINs can't be carried forward again, and we see the step-up in RVO.

So I think the big question in our mind is, do we see margin recovery before that as people get more comfortable with how strong the outlook looks for 2026 and starts to ramp up production or RIN prices start to respond expecting that there's going to be such an increase in 2026. So that's what our eyes are on. I think that's what most folks in the industry are tracking as well. And long-term, we think the changes that occurred in Q2 are quite bullish for the space. So looking forward to getting there.

Okay. And just on the Montana/Renewables monetization, it's -- I mean, it looks like it's still on the table. But from a timeline perspective, should we expect any movement on that front in 2026? Or is this a little bit more sort of a future type event for the company now?

Yes, I don't think 2026 should be thought of as off the table at all. When we rewind the clock a little bit and we say, what do we have to do at Montana/Renewables, we need to get the DOE loan that's done. We needed to prove out our operation, commercial position that's done. We needed to demonstrate our cost advantage, that's done. Right now, we're ramping up kind of the faster, cheaper first step into MaxSAF. We think that's a really nice value upside for potential buyers. And then the last thing you need that's a little bit outside of our control is really just demonstrated margins, which we kind of just talked about.

So we think that you get a little bit of margin improvement here late this year, early into next year have a quarter or 2 of really strong earnings, and it's an active conversation. I don't want to predict exactly when that happens and the like. But I wouldn't say 2026 is off the table by any stretch.

The next question comes from Jason Gabelman with TD Cowen.

I wanted to get your views on the RVO proposal and specifically the part that talks about half RIN generation for imported feed or products. And I'm wondering if you have a sense of what that does to the market. Does that essentially just double the value for RINs? Or is there some offset on feedstock costs? And do you think that is likely to be included in the final RVO?

Jason, it's Todd. Great question. I wish Bruce is here to help with it a little bit, but he'll be back this afternoon and hopefully, by the time we get to connect a little later to chime in more. But the whole half RIN concept is an interesting one. I'd say the most important thing is we don't see that imported feed is needed to basically meet the RVO as it is. 4.5 billion gallons of domestic feed is what it calls for in the proposal. And we're generating almost 7 billion gallons of domestic feed in North America now. So big macro, I would start there and say, I don't know how much imported feed is even in the mix.

Now if you go down a little bit, there are certain plants that just logistically would have a really hard time potentially bringing in or would need to just work on their rail, et cetera, to do more around domestic. And I think that's something that can be done in time. But they may be in the mix for a little bit. But big picture, we don't think that imported feed is needed to meet the proposed RVO. If it is temporary, then I think exactly what you said is right. You would look at our supply stack and you would say those folks that are running on imported feed, the RINs basically would have to cover that price.

The RIN price in order for them to run and meet the D4 requirement would have to adjust so that at half RIN value, they'd be incentivized to do that. So either the price of the imported feed would have to go down. That's not going to happen because it's a global market that has a floor price to it or the price of RINs would have to react. So we see that as a potential. And I guess it's an upside possibility. But more practically, I just don't see that imported feed will be needed to meet the proposed RVO. And we're hoping that as the group there, the EPA studies deeper into it and closes the comment period today that they'll come to the same conclusion and increase it.

Got it. Yes, that's great color. And my follow-up is just a clarification on the PTC monetizations. And I know you talked about signing some term sheets. Is there anything on regulatory front that needs to be finalized in order to convert those term sheets into final deals? Or is it just normal -- more normal course working through the paperwork?

No, I think just normal course working through the paperwork. We're in that process now. We haven't come across anything where anybody said that, hey, we need to slow down. So I think it's just the normal process. It did get delayed a little bit while rumors were swirling around the PTC and the Big Beautiful Bill kind of negotiation. But now that's behind us, it looks like game on and return to normal. So we're not seeing anything that would stand in the way. We're seeing a lot of activity there and expect to have these things sold by the next time we're talking.

This concludes our question-and-answer session. I would like to turn the conference back over to John Kompa for closing remarks.

Thank you, Steve. On behalf of Todd and the entire management team, I'd like to thank our shareholders for joining our call today and your continued support. Have a great rest of the day. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.